Nutrition Distribution LLC v. Chaos and Pain, LLC et al

Filing 15

ORDER: (1) Granting 13 Plaintiff's Motion to File Documents Under Seal; and (2) Granting 12 Plaintiff's Motion for Default Judgment. Judgment is entered in favor of Plaintiff in the amount of $81,005.40. The Clerk is directed to close this case. Signed by Judge Thomas J. Whelan on 4/10/2018. (jao)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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NUTRITION DISTRIBTION LLC,

Case No.: 16-CV-1932 W (JMA)

Plaintiff,

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v.

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ORDER:

CHAOS AND PAIN, LLC,

(1) GRANTING PLAINTIFF’S
MOTION TO FILE DOCUMENTS
UNDER SEAL [DOC. 13]; AND

Defendant.

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(2) GRANTING PLAINTIFF’S
APPLICATION FOR DEFAULT
JUDGMENT [DOC. 12]

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Pending before the Court are Plaintiff’s motion to file documents under seal, and

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Plaintiff’s Application for Default Judgment. [Docs. 13, 12.] The Court decides the

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matters on the papers submitted and without oral argument pursuant to Civil Local Rule

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7.1(d)(1). For the reasons that follow, the Court GRANTS Plaintiff’s motion to file

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under seal, GRANTS Plaintiff’s application for default judgment, orders that default

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judgment be entered in favor of Plaintiff, and awards damages totaling $81,005.40.

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16-CV-1932 W (JMA)

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I.

BACKGROUND
Plaintiff Nutrition Distribution LLC filed this action on August 1, 2016, alleging

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that Defendant unlawfully advertised unsafe products in violation of the Lanham Act, 15

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U.S.C. § 1125, et seq. (See Compl. [Doc. 1].)

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According to the Complaint, Plaintiff is an Arizona limited liability company in the

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business of manufacturing and marketing sports supplements. (See Compl. [Doc. 1] ¶¶

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11, 14.) Defendant Chaos and Pain, LLC, is one of Plaintiff’s competitors based in

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Alabama. (See id. [Doc. 1] ¶ 19.) The Complaint alleges that Defendant sells products

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known as Selective Androgen Receptor Modulators (“SARMs”) that “are synthetic drugs

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intended to have effects similar to those of illegal anabolic steroids.” (Id. [Doc. 1] ¶¶ 1–

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7, 19–24.) However, according to the Complaint, these SARMs are “not safe for human

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consumption” and “likely pose significant health and safety risks to consumers.” (Id.

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[Doc. 1] ¶¶ 21–22.) According to the Complaint, “[t]he use of such falsely marketed

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substances has the tendency to deceive a substantial segment of the public and

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consumers, including those in this district, into believing that they are purchasing a

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product with different characteristics”—namely that the products are safer than anabolic

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steroids. (See id. [Doc. 1] ¶¶ 28–30.) The Complaint further alleges that Plaintiff has

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suffered economic loss and “loss of goodwill in Plaintiff’s products” as a result of the

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introduction of the SARMs into the nutrition supplement market. (See id.)

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Plaintiff served Defendant on August 12, 2016. (Proof of Service [Doc. 3].)

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Defendant did not timely respond. On October 4, 2016, the Clerk entered Defendant’s

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default. (Clerk’s Entry of Default [Doc. 4].)

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Plaintiff initially applied for default judgment on December 9, 2016. (Application

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for Default Judgment [Doc. 6].) The Court denied this application without prejudice on

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May 24, 2017, reasoning that Plaintiff had not established its damages to a reasonable

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certainty. (May 24, 2017 Order [Doc. 9].) The Court later granted Plaintiff’s motion for

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leave to conduct discovery on the damages issue. (September 28, 2017 Order [Doc. 11].)

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Plaintiff applied for default judgment once again on January 23, 2018, and it filed a
concurrent motion to file documents under seal. [Docs. 12, 13.]

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II.

LEGAL STANDARD

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A.

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Federal law creates a strong presumption in favor of public access to court records.

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But this right of access is not absolute. San Jose Mercury News, Inc. v. U.S. Dist. Court–

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N. Dist. (San Jose), 187 F.3d 1096, 1102 (9th Cir. 1999). “Every court has supervisory

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power over its own records and files[,]” and may provide access to court documents at its

Motion to File Under Seal

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discretion. See Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995) (quoting

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Nixon v. Warner Communications, Inc., 435 U.S. 589, 598 (1978)). District courts

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therefore have authority to seal and unseal court records, a power that derives from their

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inherent supervisory power. See Hagestad, 49 F.3d at 1434.

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When a district court is asked to seal court records in a civil case, the presumption

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in favor of access can be overcome by a showing of “sufficiently important

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countervailing interests.” See San Jose Mercury News, 187 F.3d at 1102. The factors

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relevant to determining whether this presumption has been overcome include the “

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‘public interest in understanding the judicial process and whether disclosure of the

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material could result in improper use of the material for scandalous or libelous purposes

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or infringement upon trade secrets.’ ” Hagestad, 49 F.3d at 1434 (quoting EEOC v.

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Erection Co., Inc., 900 F.2d 168, 170 (9th Cir. 1990). “After taking all relevant factors

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into consideration, the district court must base its decision on a compelling reason and

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articulate the factual basis for its ruling, without relying on hypothesis or conjecture.” Id.

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(citing Valley Broad. Co. v. United States Dist. Court, 798 F.2d 1289, 1295 (9th Cir.

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1986)).

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As a natural consequence of the public’s right of access to records in civil cases,

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the presumption of public access cannot be overcome by a mere stipulation of the parties.

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As Judge Posner recognized, the district judge is duty-bound to scrutinize any request to
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seal court documents and therefore “may not rubber stamp a stipulation to seal the

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record.” Citizens First Nat. Bank of Princeton v. Cincinnati Ins. Co., 178 F.3d 943, 945

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(7th Cir. 1999); accord City of Hartford v. Chase, 942 F.2d 130, 136 (1st Cir. 1991)

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(“[T]he trial court—not the parties themselves—should scrutinize every such agreement

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involving the sealing of court papers and what, if any, of them are to be sealed . . . .”).

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B.

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Federal Rule of Civil Procedure 55(b)(2) governs applications for default

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judgment. Default judgment is available as long as the plaintiff establishes that: (1) the

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defendant has been served with the summons and complaint and default was entered for

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their failure to appear; (2) the defendant is neither a minor nor an incompetent person; (3)

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the defendant is not in military service or not otherwise subject to the Servicemembers

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Civil Relief Act; and (4) if the defendant has appeared in the action, that the defendant

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was provided with notice of the application for default judgment at least seven days prior

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to the hearing. See, e.g., 50 U.S.C. § 3931; Fed. R. Civ. P. 55; Twentieth Century Fox

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Film Corp. v. Streeter, 438 F. Supp. 2d 1065, 1070 (D. Ariz. 2006).

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Application for Default Judgment

Entry of default judgment is within the trial court’s discretion. See Taylor Made

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Golf Co. v. Carsten Sports, Ltd., 175 F.R.D. 658, 660 (S.D. Cal. 1997) (Brewster, J.)

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(citing Lau Ah Yew v. Dulles, 236 F.2d 415 (9th Cir. 1956)). In making this

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determination, the court considers the following factors: (1) the possibility of prejudice to

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the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the

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complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute

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concerning the material facts, (6) whether the default was due to excusable neglect, and

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(7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions

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on the merits. Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986).

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Upon entry of default, the factual allegations in plaintiff’s complaint, except those

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relating to damages, are deemed admitted. See, e.g., Televideo Sys., Inc. v. Heidenthal,

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826 F.2d 915, 917–18 (9th Cir. 1987) (quoting Geddes v. United Fin. Grp., 559 F.2d 557,
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560 (9th Cir. 1977)). Where the amount of damages claimed is a liquidated sum or

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capable of mathematical calculation, the court may enter a default judgment without a

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hearing. See Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981). When it is

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necessary for the plaintiff to prove unliquidated or punitive damages, the court may

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require plaintiff to file declarations or affidavits providing evidence for damages in lieu

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of a full evidentiary hearing. Transportes Aereos De Angola v. Jet Traders Invest. Corp.,

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624 F. Supp. 264, 266 (D. Del. 1985).

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III.

DISCUSSION

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A.

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Plaintiff seeks to file two exhibits under seal. (Mot. to File Under Seal [Doc. 13];

Motion to File Under Seal

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Sealed Lodged Documents [Doc. 14].) Both are financial records, and both contain the

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personal information of the customers who did business with Defendant. This

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information is private and presents a sufficiently important countervailing interest to

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override the presumption of public access to court documents. See San Jose Mercury

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News, 187 F.3d at 1102. Plaintiff’s motion to file under seal will be granted. [Doc. 13.]

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B.

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As noted above, Plaintiff served Defendant on August 12, 2016. (Proof of Service

Application for Default Judgment

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[Doc. 3].) Defendant did not timely respond. On October 4, 2016, the Clerk entered

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Defendant’s default. (Clerk’s Entry of Default [Doc. 5].)

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Accordingly, per Eitel, 782 F.2d at 1471–72, the Court considers the following
factors in determining whether the circumstances warrant an entry of default judgment.

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1.

The Possibility of Prejudice to the Plaintiff

Despite proper service on August 12, 2016, Defendant has not responded to the

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Complaint. (Proof of Service [Doc. 3].) Nor has it requested additional time to do so, or

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taken any other action to indicate that it will respond in the future. As time continues to
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pass without any action on the part of Defendant, it becomes increasingly unlikely that a

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response is forthcoming. This delay is to the detriment of Plaintiff. In the absence of a

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default judgment, it is likely that Plaintiff would be left without a remedy. See, e.g., Bd.

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of Trustees of Laborers Health & Welfare Tr. Fund for N. California v. Cal-Kirk

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Landscaping, Inc., 2012 WL 5869619, at *4 (N.D. Cal. Nov. 19, 2012).

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This factor counsels in favor of granting Plaintiff’s application.

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2.

The Merits of Plaintiff’s Substantive Claims

The allegations underlying Plaintiff’s substantive claim are fundamentally

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straightforward. Defendant falsely advertised a potentially hazardous dietary supplement

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as safe for human consumption. (See Compl. [Doc. 1] ¶¶ 19–23.) Upon the Clerk’s entry

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of default, the Court takes these allegations as true. See, e.g., Televideo Sys., 826 F.2d at

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917–18.

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This factor counsels in favor of granting Plaintiff’s application.

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3.

The Sufficiency of the Complaint

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The Complaint is sufficient.

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The elements of a Lanham Act false advertising claim are:

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(1) a false statement of fact by the defendant in a commercial advertisement about
its own or another's product; (2) the statement actually deceived or has the tendency
to deceive a substantial segment of its audience; (3) the deception is material, in that
it is likely to influence the purchasing decision; (4) the defendant caused its false
statement to enter interstate commerce; and (5) the plaintiff has been or is likely to
be injured as a result of the false statement, either by direct diversion of sales from
itself to defendant or by a lessening of the goodwill associated with its products.

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Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997).

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Plaintiff’s Complaint alleges that Defendant has made false statements in its

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advertisements as to the safety of the SARMs products. (Compl. [Doc. 1] ¶¶ 20–24, 26–

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27.) It alleges that these statements have the tendency to deceive consumers. (Id. [Doc.

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1] ¶ 28.) It alleges that the deception is material, has been introduced into interstate

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commerce, and has injured Plaintiff. (Id. [Doc. 1] ¶¶ 29–31.)

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The Complaint is sufficient. This factor counsels in favor of granting the
application.

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4.

The Sum of Money at Stake

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Plaintiff’s application seeks damages in the amount of $68,459.52,1 plus costs and

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attorneys’ fees. (Tauler Decl. [Doc. 12-2] ¶ 3.) This is a significant sum. However, for

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the reasons stated below, it is an appropriate measure of the damages sustained by

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Plaintiff.

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This factor counsels in favor of granting the application.

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5.

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The Possibility of a Dispute Concerning the Material Facts

There is no indication that a dispute is likely concerning any material facts. Upon

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the entry of the default, the factual allegations in the Complaint are deemed admitted.

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See Televideo Sys., 826 F.2d at 917–18.

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This factor counsels in favor of granting the application.

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6.

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Whether the Default was Due to Excusable Neglect

There is no indication that the default was due to excusable neglect. As noted,

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Defendant was served with the summons and Complaint in August of 2016. (Proof of

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Service [Doc. 6].) It has failed to respond in the more than nineteen months since then.

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This factor counsels in favor of granting the application.

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It also seeks an enhancement of damages. (App. for Default Judgment [Doc. 12-1] 18:8–24.) As
discussed below, this is not appropriate. As such, it is not taken into consideration here.

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7.

Strong Policy Favoring Decisions on the Merits

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This factor favors denial of an application for default judgment.

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Eitel factors one through six favor granting Plaintiff’s application. In light of the

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foregoing, the Court will exercise its discretion to enter default judgment. See Fed. R.

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Civ. P. 55(b); Eitel, 782 F.2d at 1471–72.

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Defendant’s default operates as an admission of the allegations in the Complaint,

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save those relating to damages. See Televideo, 826 F.2d at 917–18. As such, remedies

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are the only remaining issue in this case.

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8.

Remedies
a)

Permanent Injunctive Relief

Courts have the power to grant injunctions “according to the principals of equity

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and upon such terms as [they] may deem reasonable . . . to prevent a violation of [15

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U.S.C. § 1125(a).” See 15 U.S.C. § 1116(a).

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According to well-established principles of equity, a plaintiff seeking a permanent
injunction must satisfy a four-factor test before a court may grant such relief. A
plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that
remedies available at law, such as monetary damages, are inadequate to compensate
for that injury; (3) that, considering the balance of hardships between the plaintiff
and defendant, a remedy in equity is warranted; and (4) that the public interest
would not be disserved by a permanent injunction.

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).

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Plaintiff’s request for an injunction comprises two separate requests.

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First, Plaintiff seeks a court order permanently forbidding Defendants from selling

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SARMs. (App. for Default Judgment [Doc. 12-1] 14:12–15:24.) This is not appropriate.

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Plaintiff’s lawsuit is based on the theory that Defendant has improperly advertised the

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products in question. Plaintiff does not justify its position that its competitor should be

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permanently enjoined from selling its products. Plaintiff’s harms are economic in nature.

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There is no indication that monetary damages are inadequate to compensate for them.

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Second, Plaintiff requests a court order permanently forbidding Defendant—its

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competitor—from operating its website. (App. for Default Judgment [Doc. 12-1] 14:12–
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15:24.) Plaintiff does not indicate precisely what appears on this website, but it seems to

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be urging the Court to enjoin all speech on the site based on its content. “Content-based

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regulations [on speech] pass constitutional muster only if they are the least restrictive

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means to further a compelling interest.” Nissan Motor Co. v. Nissan Computer Corp.,

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378 F.3d 1002, 1016 (9th Cir. 2004) (quoting S.O.C., Inc. v. County of Clark, 152 F.3d

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1136, 1145 (9th Cir.1998)). Plaintiff makes no such argument here. And once again,

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Plaintiff does not demonstrate the inadequacy of a monetary remedy.
Plaintiff’s requests for injunctive relief will be denied.

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b)

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Monetary Damages
(1)

Defendant’s Profits

Plaintiff seeks Defendant’s profits. (App. for Default Judgment [Doc. 12-1] 15:25–

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18:24.) It calculates these profits by reference to two records of sales on electronic

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retailers on which Defendant sold the products in question—an eBay store, and

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Defendant’s website. (Id.) Only one of these labeled the transactions in question—the

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eBay store. 4.57% of Defendant’s total sales on the eBay store constituted SARMs

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products, which form the basis for this action—$2,959.46 out of $64,748.45. (Id.)

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Plaintiff applies that same percentage to Defendant’s website sales, $1,433,918.14, none

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of which are labeled, to conclude that approximately $65,530.06 of the proceeds of

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Defendant’s website sales are attributable to the sales of SARMs products. (Id.) Adding

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this total to the $2,959.46 from the sale of SARMs on the eBay store, Defendants’ total

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damage calculation is $68,459.52. (Id.) This is a reasonable basis for computing

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Defendant’s profits from the sale of SARMs products. See Eastman Kodak Co. of N.Y.

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v. S. Photo Materials Co., 273 U.S. 359, 379 (1927).

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(2)

Enhancement of Damages

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Plaintiff seeks to multiply this $68,459.52 figure by 1.5 on the ground that

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“Defendant’s deception goes to an issue of public health.” (App. for Default Judgment

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[Doc. 12-1] 18:8–24.) This is inappropriate. “[T]he Lanham Act has been construed to

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expressly forbid the award of damages to punish an infringer.” Skydive Arizona, Inc. v.

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Quattrocchi, 673 F.3d 1105, 1114 (9th Cir. 2012); 15 U.S.C. § 1117(a). On the contrary,

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“ ‘enhancement [of damages] is only available to ensure that the plaintiff receives

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compensation.’ ” Id. (quoting BASF Corp. v. Old World Trading Co., 41 F.3d 1081,

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1096 (7th Cir. 1994)). Plaintiff makes no showing that such a multiplier is necessary to

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achieve just compensation, but rather urges the Court to punish Defendant for its bad

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acts. The law does not allow for this.2 No enhancement is appropriate.

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(3)

Attorneys’ Fees

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The Lanham Act allows for the recovery of costs, and an award of reasonable

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attorneys’ fees “in exceptional cases.” 15 U.S.C. § 1117. An exceptional case is “simply

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one that stands out from others with respect to the substantive strength of a party’s

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litigating position (considering both the governing law and the facts of the case) or the

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unreasonable manner in which the case was litigated[.]” Octane Fitness, LLC v. ICON

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Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014). “District courts may determine

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whether a case is ‘exceptional’ in the case-by-case exercise of their discretion,

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considering the totality of the circumstances.” Id.
Plaintiff’s counsel requests $495.88 in costs—$400 in filing fees, $1.88 in postage,

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and $94 in service of process fees. (Tauler Decl. [Doc. 12-2] ¶ 8.) These figures are

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appropriate.

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Plaintiff’s request for judicial notice is granted. See Fed. R. Evid. 201. The documents in question
were not necessary to the Court’s decision and were not taken into consideration.
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Plaintiff’s counsel requests $14,610 in fees, arguing that this is an exceptional case

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because of its relationship to public health. (See App. for Default Judgment [Doc. 12-1]

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18:25–20:19; Tauler Decl. [Doc. 12-2].) Given the potentially unsafe nature of the

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substances being sold and the fact that Defendant failed to appear, this is an unusual case.

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Attorneys’ fees are appropriate.
However, Mr. Tauler’s claimed billable rate of $650/hour is not. Plaintiff’s

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counsel attempts to justify this figure by reference to the fact that he attended Harvard

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Law School and practices in Los Angeles. 15 U.S.C. § 1117 allows the Court to award

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only reasonable fees. Mr. Tauler will be compensated at the rate of $450/hour. The other

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rates are reasonable—$385/hour for John Lin, Tauler’s of counsel, and $300/hour for his

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associate, Valerie Saryan.
Mr. Tauler reasonably billed for 12.5 hours, Mr. Lin for 5 hours,3 and Ms. Saryan

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for 15 hours. Mr. Tauler and his firm are entitled to recover a total of $12,050 for their

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work in this case.
In short, Plaintiff will recover $68,459.52 in Defendant’s profits, plus $495.88 in

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costs and $12,050.00 in reasonable attorneys’ fees, for a total of $81,005.40.

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Mr. Tauler’s declaration calculates Mr. Lin’s total fees at $1,985 for 5 hours of work at the rate of
$385/hour. (Tauler Decl. [Doc. 12-2] ¶ 5.) This would appear to be a typo. The correct figure is
$1,925.
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IV.

CONCLUSION & ORDER

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Plaintiff’s motion to file documents under seal is GRANTED. [Doc. 13.]

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Plaintiff’s application for default judgment is GRANTED. [Doc. 12.]

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Judgment is entered in favor of Plaintiff in the amount of $81,005.40. The Clerk is

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directed to close this case.

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IT IS SO ORDERED.
Dated: April 10, 2018

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