Moorer v. Stemgenex Medical Group, Inc. et al

Filing 39

ORDER granting in part and denying in part Defendants' 33 Motion to Dismiss Plaintiffs' Second Amended Complaint. Signed by Judge Anthony J. Battaglia on 4/6/2017. (All non-registered users served via U.S. Mail Service) (fth)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION TO DISMISS
PLAINTIFFS’ SECOND AMENDED
COMPLAINT

Plaintiffs,

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Case No.: 3:16-cv-02816-AJB-NLS

SELENA MOORER, individually and on
behalf of all others similarly situated,
v.
STEMGENEX MEDICAL GROUP,
INC., a California Corporation;
STEMGENEX, INC., a California
Corporation; STEM CELL RESEARCH
CENTRE, INC., a California Corporation;
ANDRE P. LALLANDE, D.O., an
individual; RITA ALEXANDER, an
individual; and Does 1-100,
Defendants.

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Presently before the Court is Defendants’ Stemgenex Medical Group, Inc.,

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Stemgenex, Inc., Stem Cell Research Centre, Inc., Andre P. Lallande, D.O., and Rita

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Alexander (collectively, “Defendants”) motion to dismiss Plaintiffs’ Selena Moorer,

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Stephen Ginsberg, and Alexandra Gardner (collectively, “Plaintiffs”) Second Amended

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Complaint (“SAC”) pursuant to Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6).

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(Doc. No. 33.) Having reviewed the parties’ moving papers and controlling legal authority,

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the Court finds the motion suitable for determination on the papers without oral argument

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pursuant to Local Rule 7.1.d.1. Accordingly, the motion hearing presently set for April 13,

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2017 is VACATED. For the reasons set forth below, the Court GRANTS IN PART and

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DENIES IN PART Defendants' motion.

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BACKGROUND

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On August 22, 2014, Plaintiffs filed a putative class action complaint against

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Defendants in the Superior Court of California, County of San Diego, alleging violations

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of California’s Unfair Competition Law, Business and Professions Code section 17200, et

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seq., (“UCL”), California’s False Advertising Law, Business and Professions Code section

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17500, et seq., (“FAL”), California’s Consumer Legal Remedies Act, California Civil

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Code section 1770, et seq., (“CLRA”), California’s Health and Safety Code section 24170,

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et seq., (“Human Experimentation”), 18 U.S.C. section 1961, et seq., (“RICO”), Fraud,

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Negligent Misrepresentation, and Unjust Enrichment. (Doc. No. 1-2.) On September 15,

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2016, Plaintiffs filed a First Amended Complaint, (“FAC”), to include a claim for damages

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under the CLRA. (Doc. No. 1-3.) The FAC contained similar factual allegations, but added

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Plaintiff Stephen Ginsberg to the action and alleged an additional claim for Financial Elder

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Abuse. (Id.) On November 16, 2016, Defendants removed the action to this Court pursuant

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to 28 U.S.C. § 1441(a) and (b). (Doc. No. 1.)

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On November 22, 2016, Defendants moved to dismiss the FAC on nearly identical

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grounds as their instant motion. (Doc. No. 6.) On December 13, 2016, Plaintiffs filed their

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SAC, (Doc. No. 24), and the Court denied Defendants’ motion to dismiss as moot. (Doc.

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No. 25.) The SAC added Plaintiff Alexandra Gardner and withdrew the claim for unjust

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enrichment. (Id.) On December 28, 2016, the Court dismissed the following Defendants

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from the action pursuant to the parties’ stipulation entered on December 27, 2016, (Doc.

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No. 30): Scott Sessions, M.D., Stem Cells The Human Repair Kit, Stemgenex Biologic

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Laboratories, LLC, and Stem Genetic. (Doc. No. 32.) On January 16, 2017, Defendants

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filed the instant motion to dismiss the SAC, (Doc. No. 33), Plaintiffs opposed on February

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17, 2017, (Doc. No. 37), and Defendants replied on February 24, 2017, (Doc. No. 38.)
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The operative complaint alleges that Defendants engage in a nationwide scheme to

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“wrongfully market and sell ‘stem cell treatments’” to consumers who are often “sick or

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disabled, suffering from incurable diseases and a dearth of hope.” (Doc. No. 24 at 3.)

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Specifically, Plaintiffs allege that Defendants advertise their “stem cell treatments” to

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consumers via their website and make misrepresentations that the treatments “effectively

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treat a multitude of diseases,” when in actuality, Defendants maintain “no reasonable basis”

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to make these claims. (Id.) Plaintiffs further allege that Defendants represent to consumers

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that “100% of its prior consumers are satisfied with its service,” while omitting material

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information about its services, including consumer dissatisfaction and complaints

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regarding the ineffectiveness of the treatments. (Id.) Plaintiffs seek to represent a class of

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all consumers nationwide who purchased Stem Cell Treatments from StemGenex between

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December 8, 2013 and present, and a subclass of all members of the nationwide class aged

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65 years or older at the time of purchase. (Id. ¶¶ 64-65.)

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Plaintiffs allege that each customer was exposed to Defendants’ website, relied on

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Defendants’ “false and misleading marketing” of the Stem Cell Treatments, and have been

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harmed as a result. (Id.) Specifically, Plaintiff Moorer, suffering from lupus, Plaintiff

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Ginsberg, an elder over the age of 65 suffering from diabetes, and Plaintiff Gardener,

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suffering from diabetes, each relied upon the customer satisfaction statistics posted on the

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StemGenex website in deciding to purchase Defendants’ Stem Cell Treatments. (Id. ¶¶ 8-

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9A.) Plaintiffs allege that each Plaintiff paid a total of $14,900.00 for the treatment, did not

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benefit from the treatment, and informed Defendants of their dissatisfaction. (Id. ¶¶ 8-9A,

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11.) Further, Plaintiffs allege they would “not have paid for the Stem Cell Treatment had

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they known that the statistics on the StemGenex website regarding consumer satisfaction

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were false, and that StemGenex had no reasonable basis for its marketing claim that the

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Stem Cell Treatments were effective to treat diseases as advertised.” (Id. ¶¶ 10.)

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I.

StemGenex, Rita Alexander, and Dr. Andre Lallande

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StemGenex, Inc., has operated in La Jolla, California since 2011. (Id. ¶ 28.) Plaintiffs

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allege that the other entity Defendants StemGenex Medical Group, Inc. and Stem Cell
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Research Centre, Inc. operate out of the same facility as StemGenex, Inc. (Id.) Plaintiffs

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further allege that the named entity Defendants “were the alter ego corporations of

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individual Defendants Rita Alexander and Dr. Andre Lallande.” (Id. ¶¶ 24-25.) Plaintiffs

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allege that Defendants Alexander and Lallande own, operate, and/or control the businesses

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of Stemgenex, Stemgenex Medical Group, Inc., and Stem Cell Research Center, Inc.,

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(collectively referred to as “StemGenex”), including the advertising and/or public relations

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of StemGenex. (Id. ¶¶ 16-17, 23-24, 26-27.) StemGenex engages in the business of

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providing Stem Cell Treatments, carried out by Defendant Lallande and other physicians,

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to consumers “who have illness or medical conditions causing pain and/or disability.” (Id.

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¶¶ 26-27.) The treatments involve conducting liposuction of a person’s adult fat cells,

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processing them, and re-injecting them back into the person as stem cells. (Id. ¶ 2.) The

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total base price of $14,900.00 for each treatment is the same price charged to each

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customer. (Id. ¶ 47.) Customers are directed to pay for treatments by making a $2,500.00

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nonrefundable deposit over the phone and then paying the remainder via cashier’s check

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in person at the StemGenex location. (Id. ¶ 127.)

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II.

Defendants’ Website

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Plaintiffs allege Defendants conduct their false and misleading marketing scheme in

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part through misrepresentations made on their website, www.stemgenex.com. (Doc. No.

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24 ¶ 33.) Specifically, Plaintiffs allege that “[r]epresentations relating to the website are

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published under the authority, control and/or authorization” of Defendants Alexander

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and/or Dr. Lallande. (Id. ¶ 28.) Through their website, Defendants communicate to

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consumers that StemGenex is “a pioneer in research and devoted to effective Stem Cell

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Treatments.” (Id. ¶ 31.) Defendants “offer[] patients access to cutting edge adipose stem

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cell therapy for many degenerative diseases” such as Alzheimer’s disease, COPD,

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Parkinson’s disease, diabetes, and multiple sclerosis. (Id. at 12-15.) Defendants further

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represents that the treatment is a “minimally invasive procedure using an individual’s own

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stem cells to treat diseases” and that “the key to the most effective stem cell treatment is

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through treatment plan customization.” (Id. at 15, 19.) The StemGenex website also
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suggests stem cell therapy may be repeated and that “[c]urrent studies indicate the strong

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possibility of a cumulative effect from multiple stem cell therapies.” (Id. ¶ 49.) Plaintiffs

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allege that up until August 2016, Defendants misrepresented on their website that

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StemGenex was accredited by the Accreditation Association for Ambulatory Health Care,

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Inc., (AAAHC), which provides seals of approval for outpatient surgical centers. (Id. ¶¶

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29-30.)

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A.

Customer Satisfaction Representations

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Plaintiffs allege that Defendants engaged in a false and misleading marketing

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scheme regarding the efficacy of the Stem Cell Treatments by manipulating customers’

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reports of dissatisfaction and misrepresenting satisfaction statistics. (Id. ¶¶ 2, 33, 40A, 49-

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59.) Specifically, Plaintiffs allege that Defendants Alexander and Lallande “authorized and

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ratified that statements of dissatisfaction be kept out of the patients’ medical files,” hidden

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from the public, and “changed the wording of notes to make it appear that the patients were

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satisfied when they were not.” (Id. ¶ 49.) Plaintiffs allege that when customers haven’t

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received results, StemGenex employees, referred to as “Patient Advocates,” encourage

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customers to receive multiple treatments. (Id. ¶¶ 50A-51.)

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As early as December 8, 2013, Defendants began advertising “Patient Ratings” on

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their website, which steadily represented that StemGenex customers reported 100%

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positive feedback after receiving Defendants’ services. (Id. at 22-26.) Defendants’ website

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displays pie charts showing 100% of customers believe that StemGenex exceeded or at

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least met their expectations, that StemGenex is a trusted partner in the treatment of their

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disease, and were “extremely satisfied” with the medical team that performed their Stem

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Cell Treatment. (Id. at 24-25.) Defendants identify the source of the statistics as “data

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received from patient exit surveys evaluating patient experience and care,

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accommodations, staff and facilities.” (Id.) Plaintiffs allege that Defendants know “the

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100% satisfaction rate was and is not true and all evidence available to StemGenex proves

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it was not true at the time the representations were made.” (Id. ¶ 56.) Plaintiffs further

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allege that Defendants engage in a systematic practice of controlling survey results and
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misrepresenting consumer ratings to create the false and misleading premise that no

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customer was “unsatisfied” with the Stem Cell Treatments. (Id. at 26-27.)

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LEGAL STANDARDS

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A complaint must contain “a short and plain statement of the claim showing that the

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pleader is entitled to relief.” Fed. R. Civ. P. 8(a). A motion to dismiss pursuant to Rule

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12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P.

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12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). When ruling on a motion to

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dismiss under Rule 12(b)(6), the court must accept all factual allegations pleaded in the

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complaint as true, and must construe them and draw all reasonable inferences from them

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in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th

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Cir. 1996). In doing so however, the court is not bound to accept “legal conclusions” as

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true. Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009).

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To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual

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allegations; rather, the complaint must plead “enough facts to state a claim to relief that is

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plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has

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“facial plausibility when the plaintiff pleads factual content that allows the court to draw

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the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556

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U.S. at 678. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks

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for more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a

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complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops

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short of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting

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Twombly, 550 U.S. at 557). As a result, it is not proper for the court to assume that “the

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[plaintiff] can prove facts that [he or she] has not alleged or that defendants have violated

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… laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v.

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Cal. State Council of Carpenters, 459 U.S. 519 (1983).

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Complaints alleging fraud must satisfy the heightened pleading requirements of Rule

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9(b). Rule 9(b) requires that in all averments of fraud or mistake, the circumstances

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constituting that fraud or mistake should be stated with particularity. A pleading is
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sufficient under Rule 9(b) if it “state[s] the time, place[,] and specific content of the false

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representations as well as the identities of the parties to the misrepresentation.”

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Miscellaneous Serv. Workers, Drivers & Helpers, Teamsters Local No. 427 v. Philco-Ford

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Corp., 661 F.2d 776, 782 (9th Cir. 1981) (citations omitted); see also Vess v. Ciba-Geigy

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Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616,

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627 (9th Cir. 1997)). Regardless of the title given to a particular claim, allegations

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grounded in fraud are subject to Rule 9(b)’s pleading requirements. Vess, 317 F.3d at 1103-

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04; Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). A complaint sounds

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in fraud where it alleges a “unified course of fraudulent conduct and re[lies] entirely on

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that course of conduct as the basis of a claim.” In re Daou Sys., Inc., 411 F.3d 1006, 1027

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(9th Cir. 2005) (quoting Vess, 317 F.3d at 1103).

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DISCUSSION

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Prior to analyzing the merits of Defendants’ motion, the Court must resolve

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Plaintiffs’ request for judicial notice and Defendants’ various evidentiary objections to

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Plaintiffs’ request, Exhibit 1 to the SAC, and the declaration of Elizabeth A. Banham

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(“Banham Declaration”) in support thereof. (Doc. Nos. 37-4, 38-1.)

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I.

Plaintiffs’ Request for Judicial Notice and Defendants’ Evidentiary Objections

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Federal Rule of Evidence 201 allows a court to “take judicial notice of facts that are

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not subject to reasonable dispute because they are either generally known or can be readily

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determined by reference to sources whose accuracy cannot reasonably be questioned.”

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Kanfer v. Pharmacare US, Inc., 142 F. Supp. 3d 1091, 1098 (S.D. Cal. 2015). “Under FRE

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201(c), the Court must take notice if requested by a party and if supplied with the necessary

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information.” Shalaby v. Bernzomatic, 281 F.R.D. 565, 570 (S.D. Cal. 2012). “Screen shots

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of web pages, especially because of the ever-changing content, are not typically the type

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of document containing facts, the accuracy of which is capable of ready determination.”

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Evenchik v. Avis Rent A Car Sys., LLC, No. 12-cv-61 BEN (DHB), 2012 WL 4111382, at

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*1 (S.D. Cal. Sept. 17, 2012). See e.g., In re Easysaver Rewards Litig., 737 F. Supp. 2d

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1159, 1167-68 (S.D. Cal. 2010) (declining to take judicial notice of changing web screen
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shots). “As a general rule, the court ‘may not consider any material beyond the pleadings

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in ruling on a Rule 12(b)(6) motion.’” Rich v. Shrader, No. 09-CV-0652-AJB (BGS), 2011

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WL 4434852, at *4 (S.D. Cal. Sept. 22, 2011) (quoting Lee v. City of Los Angeles, 250

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F.3d 668, 688 (9th Cir. 2001), overruled on other grounds). “The court may, however,

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consider materials that are submitted with and attached to the complaint, as well as

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unattached evidence on which the complaint ‘necessarily relies’ if: (1) the complaint refers

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to the document; (2) the document is central to the plaintiff’s claim; and (3) no party

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questions the authenticity of the document.” Rich, 2011 WL 4434852, at *4 (citing Marder

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v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). See e.g., Castagnola v. Hewlett-Packard Co.,

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No. C 11-05772 JSW, 2012 WL 2159385, at *7-10 (N.D. Cal. June 13, 2012) (considering

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screen shots of defendant’s web pages which plaintiff incorporated into his complaint).

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“Even if a document is not attached to a complaint, it may be incorporated by reference

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into a complaint if the plaintiff refers extensively to the document or the document forms

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the basis of the plaintiff’s claim.” U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

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In support of their Opposition, Plaintiffs request judicial notice of Defendants’

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websites, www.stemgenex.com and past iterations of the StemGenex webpage on web

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archives at https://archive.org/web, and the search term https://stemgenex.com. (Doc. No.

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37-4.) The Banham Declaration attests that these website addresses are offered “to show

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what was posted at various times throughout the Class Period” as relied upon in the SAC

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and to rebut a claim made in Defendants’ motion. (Doc. No. 37-3 ¶ 3.) Banham declares

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that the archived webpages reveal that the Defendants’ “disclaimer tag line about

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satisfaction data being based on patient exit surveys was not added to the StemGenex web

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advertising until between November 25, 2015 and May 16, 2016.” (Id. ¶ 4.) Defendants

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object to Plaintiffs’ request on the basis that they haven’t attached screenshots of the

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referenced webpages, nor provided the specific webpage addresses for such content. (Doc.

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No. 38-1 at 7.)

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The Court finds that Plaintiff’s request for judicial notice of Defendants’ webpages

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is inappropriate. In re Easysaver, 737 F. Supp. 2d at 1167. See generally Rivera v. Phillip
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Morris, Inc., 395 F.3d 1142, 1151 (9th Cir. 2005) (“Because the effect of judicial notice is

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to deprive a party of an opportunity to use rebuttal evidence, cross-examination, and

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arguments to attack contrary evidence, caution must be used in determining that a fact is

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beyond controversy under Rule 201(b).”). “The Court finds that whether these are the

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webpages Plaintiffs would have viewed during their online transactions is subject to a

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‘reasonable dispute.’” In re Easysaver, 737 F. Supp. 2d at 1168 (quoting Fed. R. Evid.

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201). “It would be inappropriate for the Court to compare and contrast the several versions

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of [archived] webpages to determine if there are any material differences in the language.”

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Id. However, the Court believes the doctrine of incorporation by reference applies to the

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excerpts of Defendants’ webpages inserted into the SAC.

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The Court finds the StemGenex website ads undoubtedly form the basis of Plaintiffs’

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claims because the SAC revolves around allegations that Defendants communicated the

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misrepresentations to consumers in part through their website. Plaintiffs incorporate

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various screenshots of Defendants’ website data into their SAC. (Doc. No. 24 at 12-16, 19,

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22-25.) Since the customer satisfaction ratings on the StemGenex website are integral to

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Plaintiffs’ claims, the Court incorporates them by reference. Ritchie, 342 F.3d at 907-08.

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However, the Court believes attachment of Defendants’ archived webpages is necessary,

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especially here where the parties disagree over the significance of the patient satisfaction

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reports. See Caldwell v. Caldwell, No. C 05-4166 PJH, 2006 WL 618511, at *4 (N.D. Cal.

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March 13, 2006). Most importantly, the SAC is devoid of allegations about when

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Defendants’ allegedly added the “disclaimer tag line” to their website ads. It appears

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Plaintiffs place much weight in their Opposition about the significance of a “disclaimer tag

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line” utilized by Defendants in conjunction with their customer satisfaction ratings prior to

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November 25, 2015. (See Doc. No. 37 at 5, 13-14.) Thus, since this archived content assists

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Plaintiffs’ false advertising claims and Defendants dispute the significance of such,

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Plaintiffs should provide printouts of the specific archived webpages upon which they base

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their arguments. Id. Plaintiffs’ request for judicial notice is therefore DENIED. However,

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the Court incorporates by reference the screenshots from Defendants’ websites that

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Plaintiffs inserted into the SAC.

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Defendants also object to Plaintiffs’ attachment of a former StemGenex employee’s

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online review, Exhibit 1 to the SAC, and the Banham Declaration, and request that these

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documents be stricken from the record. (See Doc. No. 38-1.) The SAC refers to a November

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24, 2015 online review by a former StemGenex employee posted on an employment

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website, Glassdoor.com. (Doc. No. 24 at 26-27.) Plaintiffs attach the review in support of

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their claim that Defendants engaged in a comprehensive false and misleading scheme to

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misrepresent the percentage of customer satisfaction to prospective customers. (Id.)

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However, Defendants entirely dispute its authenticity and Plaintiffs fail to attach a

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declaration to authenticate. Thus, the Court finds the review to be extrinsic evidence

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inappropriate for consideration on the motion to dismiss. See In re Easysaver, 737 F. Supp.

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2d at 1168 (“Information from the internet does not necessarily bear an indicia of reliability

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and therefore must be properly authenticated by affidavit.”). Thus, Defendants’ objection

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to Exhibit 1 is SUSTAINED.

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As to the Banham Declaration, Defendants object to its entirety on the grounds that

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Banham’s declaration is not based on personal knowledge, lacks necessary foundation,

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constitutes hearsay, and violates the Best Evidence Rule. (Doc. No. 38-1.) Banham does

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not attest that the information set forth in her declaration is based upon her personal

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knowledge. While it is untrue that recitation of the words “personal knowledge” is

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necessary, Banham nonetheless fails to describe any of her own actions, which set forth

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the basis for her personal knowledge of such facts. Cf. Dabbas v. Moffitt & Assocs., No.

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07cv0040, 2008 WL 686687, fn. 1 (S.D. Cal. March 12, 2008). Overall, the content of the

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Banham Declaration goes to Plaintiffs’ allegations regarding the false and misleading

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nature of Defendants’ use of a “disclaimer tag” in support of consumer satisfaction ratings.

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This testimony supports Plaintiffs’ request for judicial notice of Defendants’ archived

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webpages, and thus, will not be considered due to the denial of the same addressed above.

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Thus, the Court also SUSTAINS Defendants’ evidentiary objection as to the Banham
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Declaration. See Ritchie, 342 F.3d at 909 (holding it would have been improper for the

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court to consider the declaration and exhibits attached to the plaintiff’s opposition to the

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motion to dismiss without converting the motion into a motion for summary judgment and

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giving defendant an opportunity to respond).

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Accordingly, the Court DENIES Plaintiffs’ request for judicial notice and

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SUSTAINS Defendants’ evidentiary objections. As discussed below, the Court was able

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to decide the motion to dismiss without reliance on the former employee online review, the

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archived webpages, and corresponding testimony of the Banham Declaration. Moreover,

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the absence of such documents did not alter the Court’s analysis. The Court must accept

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the truth of Plaintiffs’ allegations that they were misled by Defendants’ tactics to promote

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the purchase of StemGenex stem cell treatments.

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Motion to Dismiss

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Defendants move to dismiss each of Plaintiff’s seven claims alleged in the SAC on

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the grounds that Plaintiffs failed to state a claim under Fed. R. Civ. P. 12(b)(6), failed to

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plead fraud with specificity under Rule 9(b), and failed to satisfy the general pleading

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requirements under Rule 8(a). The Court addresses each claim in turn.

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First Alleged Misrepresentation: Efficacy of Stem Cell Treatments

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A.

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At the outset, Defendants contend that Plaintiffs’ UCL, FAL, and CLRA claims, as

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well as the common law fraud and negligent misrepresentation claims, must be dismissed

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because they “are based solely upon the supposed lack of substantiation for the advertised

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efficacy of StemGenex’s Stem Cell Treatment.” (Doc. No. 33-1 at 13.) Specifically,

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Defendants point to the plain reading of the SAC, which demonstrates that the action “is

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based upon the material omission of important information from any communication by

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Stemgenex to its consumers: That StemGenex has no data or reasonable basis to support

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the efficacy of its Stem Cell Treatments.” (Doc. No. 38 at 5) (quoting Doc. No. 24 ¶ 61.)

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Plaintiffs respond that the scientific substantiation of the efficacy Defendants’ stem cell

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treatment is “not the focus of this case.” (Doc. No. 37 at 12) (Emphasis in original.)

Lack of Substantiation

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Rather, the “crux of the complaint is that Defendants knowingly posted false information

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that all of their consumers had good and/or satisfactory outcomes, yet they know that not

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all of them did.” (Id.) To the extent this case is about the efficacy of the stem cell

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treatments, Plaintiffs state they have medical and scientific experts “present and ready on

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Plaintiff’s side,” but are “not needed to show that Defendants are in possession of

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knowledge that many of their own patients do not feel their expectations were met.” (Doc.

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No. 37 at 12.)

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Despite Plaintiffs’ contention, the Court discerns that the crux of Plaintiffs’ SAC is

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actually twofold: Plaintiffs specifically allege in the SAC that Defendants misrepresent (1)

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“the quality, character, and efficacy of its Stem Cell Treatment, as well as” (2) “omissions

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of material fact regarding the truth about its services, the lack of data supporting their

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efficacy, and dissatisfaction rates.” (Doc. No. 24 at ¶ 33, emphasis added.) Since “lack of

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substantiation” regards the purported efficacy of the stem cell treatments, the Court will

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evaluate the merits of Plaintiffs’ claims as to the efficacy misrepresentation.

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“False-advertising claims based on a lack of substantiation, rather than provable

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falsehood, are not cognizable under the California consumer-protection laws.” Kanfer, 142

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F. Supp. 3d at 1103; see In re Clorox Consumer Litig., 894 F. Supp. 3d 1224, 1232 (N.D.

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Cal. 2012) (collecting cases). “Challenges based on a lack of substantiation are left to the

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Attorney General and other prosecuting authorities; private plaintiffs, in contrast, have the

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burden of proving that advertising is actually false or misleading.” Bronson v. Johnson &

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Johnson, Inc., No. C 12-04184 CRB, 2013 WL 1629191, at *8 (N.D. Cal. Apr. 16, 2013);

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see Nat’l Council Against Health Fraud v. King Bio Pharm., Inc., 107 Cal. App. 4th 1336,

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1345 (2003) (“Private plaintiffs are not authorized to demand substantiation for advertising

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claims.”).

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“Courts have been careful to distinguish between allegations that a defendant’s

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advertising claims are actually false and allegations that such claims lack substantiation.”

27

In re Clorox, 894 F. Supp. 2d at 1232. See e.g. Fraker v. Bayer Corp., No. CV F 08-1564

28

AWI GSA, 2009 WL 5865687, at *8 (E.D. Cal. Oct. 6, 2009) (“If Plaintiff is going to
12
3:16-cv-02816-AJB-NLS

1

maintain an action against Defendant for false or misleading advertising, then Plaintiff will

2

be required to adduce evidence sufficient to present to a jury to show that Defendant’s

3

advertising claims with respect to Product are actually false; not simply that they are not

4

backed up by scientific evidence.”). “Courts look to a plaintiff’s complaint as a whole when

5

determining if a plaintiff merely alleged a lack of substantiation claim.” Bronson, 2013 WL

6

1629191, at *8. “A claim can survive a lack of substantiation challenge by, for example,

7

alleging studies showing that a defendant’s statement is false.” Id. “In contrast, a plaintiff’s

8

reliance on a lack of scientific evidence or inconclusive, rather than contradictory, evidence

9

is not sufficient to state a claim.” Id.

10

Looking at the SAC as a whole, the Court agrees with Defendants and finds

11

Plaintiffs’ claims are deeply entrenched in a lack of substantiation theory. Plaintiffs allege

12

“StemGenex has no reasonable basis” to make the claim that the treatments effectively

13

treat a multitude of diseases, “does not have adequate proof” to back up their claims, and

14

has “no data” to support the efficacy of its Stem Cell Treatments. (Doc. No. 24 ¶¶ 2, 40,

15

61.) Plaintiffs further allege that at present, “no such therapy has shown its safety and

16

efficacy in clinical trials.” (Id. ¶ 41.) The closest Plaintiffs get to alleging falsity is when

17

they state that “experts will testify that the generally accepted scientific consensus is that

18

there is no treatment for degenerative diseases, or any disease, with a person’s own adult

19

adipose stem cells, that has been proven “effective” at any level.” (Id. ¶ 42.) However, the

20

significance of this statement is unclear—is it currently the scientific consensus that no

21

treatment exists because it has in fact been tested and disproven, or rather, is it because no

22

study regarding its efficacy has been conducted yet, and thus, scientific literature is devoid

23

of a conclusion?

24

Furthermore, it is unclear from the face of the SAC whether Plaintiffs will be able

25

to demonstrate that Defendants’ representations about the efficacy of their Stem Cell

26

Treatments are actually false or misleading because they have not alleged that Defendants’

27

claims have actually been disproved. Plaintiffs fail to mention the existence of any

28

scientific study that purports to prove Defendants’ stem cell therapy procedure to be false
13
3:16-cv-02816-AJB-NLS

1

or misleading. Cf. Kanfer, 142 F. Supp. 3d at 1103 (finding Plaintiff alleged falsity by

2

claiming “several studies have shown that ginkgo biloba has no effect on improving sexual

3

function,” and “the FDA has determined that labeling claims for aphrodisiacs for [over-

4

the-counter] use are either false, misleading, or unsupported by scientific data.”); Eckler v.

5

Wal-Mart Stores, Inc., No. 12-cv-727-LAB-MDD, 2012 WL 5382218, at *3 (S.D. Cal.

6

Nov. 1, 2012) (finding where the plaintiff pointed to studies that “allegedly debunk the

7

purported benefits of glucosamine hydrochloride, she isn’t just saying those benefits are

8

unsubstantiated”, but are “positively false.”). What is clear from the SAC, however, is that

9

Plaintiffs continuously repeat that Defendants have “no supporting data or other reasonable

10

basis” in making claims regarding the efficacy of their stem cell treatments. As read, “the

11

Court discerns no plausibly pled claims other than the impermissible allegations that

12

Defendants’ claims lack scientific substantiation,” Bronson, 2013 WL 1629191, at *8, and

13

on that basis, must dismiss. See Fraker, 2009 WL 5865687, at *8-9 (dismissing plaintiff’s

14

claim for false advertising because plaintiff alleged only that defendant “had no reasonable

15

basis, consisting of competent and reliable scientific evidence to substantiate” its health-

16

benefit claim related to the “WeightSmart” multivitamin).

17

Accordingly, the Court GRANTS IN PART Defendants’ motion on the basis that

18

Plaintiffs pled a lack of substantiation as to their false advertising claims for the efficacy

19

of the stem cell treatments. To the extent Plaintiffs do not intend to bring a claim based on

20

the efficacy of the treatments, as hinted at in their Opposition, Plaintiffs should consider

21

clarifying this stance in their next amended complaint. Thus, because the Court dismisses

22

Plaintiffs’ claims as pled based on the alleged misrepresentation of efficacy under the UCL,

23

FAL, CLRA, negligent misrepresentation, and fraud, the Court need not discuss the merits

24

of Defendants’ challenges under Rules 8, 9(b), and 12(b)(6) as to these claims.

25

The remainder of this order will discuss the merits of Plaintiffs’ claims as applied to

26

the alleged misrepresentation of patient satisfaction.

27

//

28

//
14
3:16-cv-02816-AJB-NLS

1

Second Alleged Misrepresentation: Patient Satisfaction Ratings

2

Defendants argue that dismissal of the entire SAC is appropriate because all of

3

Plaintiffs’ claims, which are based on the “overarching assertion” that Defendants have

4

made false and misleading statements and material omissions, are subject to the Rule 9(b)

5

heightened pleading requirement. (Doc. No. 33-1 at 5.) Specifically, Defendants argue that

6

Plaintiffs have failed to allege the “who, what, when, where, and how” and have failed to

7

identify each Defendant’s role in the alleged misconduct. (Id. at 7.) Plaintiffs do not dispute

8

that Rule 9(b) applies, but rather believe they have pled with sufficient particularity to meet

9

this standard. (Doc. No. 37 at 4.)

10

A.

11

Plaintiffs’ first, second, and third claims allege that Defendants violated the UCL,

12

FAL, and CLRA by advertising false and misleading information about their consumer

13

satisfaction rates in a way that is deceptive to potential customers.

UCL, FAL, and CLRA Claims

14

The UCL prohibits any “unlawful, unfair or fraudulent business act or practice and

15

unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. “The

16

FAL makes it unlawful to induce the public to enter into any obligation through the

17

dissemination of ‘untrue or misleading’ statements.” In re Clorox, 894 F. Supp. 2d at 1231

18

(citing Cal. Bus. & Prof. Code § 17500). “[A]ny violation of the false advertising law …

19

necessarily violates’ the UCL.” Kasky v. Nike, Inc., 27 Cal. 4th 939, 950 (2002) (internal

20

quotations omitted). The CLRA prohibits “unfair methods of competition and unfair or

21

deceptive acts or practices.” Cal. Civ. Code § 1770.

22

Claims under the UCL, FAL, and CLRA are “governed by the reasonable consumer

23

test.’” See Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008) (citing

24

Freeman v. Time, Inc., 68 F.3d 285, 289 (9th Cir. 1995)). This standard also applies to

25

common law fraud and negligent misrepresentation claims. Freeman, 68 F.3d at 289

26

(common law fraud requires showing that the advertisement would mislead a reasonable

27

person); Girard v. Toyota Motor Sales, U.S.A., Inc., 316 Fed. Appx. 561, 562 (9th Cir.

28

2008) (equating “justifiable reliance” element of negligent misrepresentation to the
15
3:16-cv-02816-AJB-NLS

1

“reasonable consumer” standard). Under that standard, the plaintiff must “show that

2

members of the public are likely to be deceived.” Freeman, 68 F.3d at 289 (quotation marks

3

and citations omitted). Defendants are liable for “not only advertising which is false, but

4

also advertising which[,] although true, is either actually misleading or which has a

5

capacity, likelihood or tendency to deceive or confuse the public.” Kasky, 27 Cal. 4th at

6

951. Generally, the question of whether a business practice is deceptive is an issue of fact

7

inappropriate for a decision on a motion to dismiss. Id. at 938-39. Dismissal of such claims

8

is appropriate where the plaintiff fails to show the likelihood that a reasonable consumer

9

would be deceived. Freeman, 68 F.3d at 289-90.

10

Here, the Court believes Plaintiffs have alleged enough facts at this stage to

11

demonstrate that Defendants presented their customer satisfaction data in a way that was

12

likely to deceive or confuse reasonable consumers. For instance, Defendants represent to

13

potential consumers that their patient satisfaction ratings are monitored and updated on a

14

monthly basis. (Doc. 24 at 22-23.) Plaintiffs allege that even after Defendants received

15

complaints from the named Plaintiffs and other customers that they were unsatisfied with

16

the stem cell treatment or had not experienced an effect, they continued to publicize 100%

17

satisfaction ratings on the StemGenex website. (Id. at 4-6, 25-27.) Plaintiffs further allege

18

that after filing suit, Defendants removed language stating “0% Unsatisfied,” while the

19

graph continued to represent that 100% of expectations were met. (Id. ¶ 58.) The Court

20

finds these allegations are enough to infer that the customer satisfaction ratings are at least

21

misleading to potential customers. It is not necessary at this stage to determine whether

22

they are actually false. See In re Ferrero Litig., 794 F. Supp. 2d 1107, 1115 (S.D. Cal.

23

2011) (“A statement may be deceptive and actionable under the UCL, FAL, and CLRA

24

even though it is truthful.”) (citing Morgan v. AT&T Wireless Servs., Inc., 177 Cal. App.

25

4th 1235, 1255 (2009) (“A perfectly true statement couched in such a manner that it is

26

likely to mislead or deceive the consumer, such as by failure to disclose other relevant

27

information, is actionable under the UCL.”).

28
16
3:16-cv-02816-AJB-NLS

1
2

Thus, the Court DENIES Defendants’ motion as to the UCL, FAL, and CLRA
claims regarding the misrepresentation of customer satisfaction ratings.

3

B.

4

Plaintiffs’ sixth and seventh claims allege that StemGenex intentionally and

5

negligently misrepresented “that it had no dissatisfied customers, when in fact that was not

6

true.” (Doc. No. 24 ¶¶ 136, 149.) Defendants move to dismiss these claims on three

7

grounds. First, Plaintiffs mischaracterize the nature of the data reported in Defendants’

8

customer satisfaction advertisements. Second, Plaintiffs fail to allege that the customer

9

satisfaction data is false. Lastly, Plaintiffs fail to allege that the purported inaccuracies in

10

Fraud and Negligent Misrepresentation Claims

the data are material. (Doc. No. 33-1 at 17-18.)

11

The elements of common law fraud in California are (1) a misrepresentation of

12

material fact (false representation, concealment, or nondisclosure); (2) knowledge of

13

falsity; (3) intent to defraud, i.e. to induce reliance; (4) justifiable reliance; and (5) resulting

14

damage. Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 990 (2004). A

15

plaintiff “must state with particularity the circumstances constituting fraud.” Fed. R. Civ.

16

P. 9(b); see Vess, 317 F.3d at 1106-1107 (stating that a plaintiff must include “the who,

17

what, where, when and how” of the fraud). Additionally “where multiple defendants are

18

asked to respond to allegations of fraud, the complaint must inform each defendant of his

19

alleged participation in the fraud.” Castaneda v. Saxon Mortg. Servs., Inc., 2009 WL

20

4640673, at *4 (E.D. Cal. Dec. 3, 2009). “The elements of negligent misrepresentation are

21

the same as intentional fraud with the exception of the requirement of scienter.” Chan v.

22

Chancelor, No. 09CV1839 AJB (CAB), 2011 WL 5914263, at *5 (S.D. Cal. Nov. 28,

23

2011) (citing Melican v. Regents of Univ. of Cal., 151 Cal. App. 4th 168, 181-82 (2007)).

24

“Like a claim for intentional fraud, a claim for negligent misrepresentation must meet the

25

particularity requirement of Rule 9(b).” Id.

26

Plaintiffs have met the heightened pleading standard of Rule 9(b) for their fraud and

27

negligent misrepresentation claims. Plaintiffs identify Defendant Alexander, the founder

28

of StemGenex, who controls the business, advertising, and public relations of StemGenex
17
3:16-cv-02816-AJB-NLS

1

and all of its allegedly related companies. (Doc. No. 24 ¶ 26.) Plaintiffs also identify

2

Defendant Lallande as the physician responsible for conducting the stem cell treatments at

3

StemGenex and allege he is also involved in directing and controlling the business and

4

advertising at StemGenex. (Id. ¶ 27.) Plaintiffs further allege that Defendants Alexander

5

and Lallande publish the patient satisfaction statistics to Defendants’ website and were

6

directly involved in attaining customer feedback after treatment. (Id. ¶¶ 40A, 52, 56, 59.)

7

Plaintiffs specify the “what, when, where, and how” in alleging that Defendants

8

deceptively conveyed, through the StemGenex website, that 100% of customers were

9

satisfied with the stem cell treatments from December 8, 2013 through present, in order to

10

induce prospective customers to purchase such treatments, when in reality, Defendants

11

received negative customer reports and failed to communicate their dissatisfaction. (Id. ¶¶

12

8-9A, 11, 52-58, 64.) “These allegations are sufficient to give Defendant ample notice of

13

the particular circumstances underlying Plaintiffs’ claims against it.” Strumlauf v.

14

Starbucks Corp., 192 F. Supp. 3d 1025, 1035 (N.D. Cal. 2016).

15

Plaintiffs also plead enough facts to allege claims for fraud and negligent

16

misrepresentation. Plaintiffs sufficiently allege the satisfaction statistics were material to

17

the customer’s purchasing decision and that Plaintiffs justifiably relied on such

18

information. Plaintiffs Moorer, Ginsberg, and Gardner each allege that they informed

19

StemGenex of their dissatisfaction after the treatments and that the satisfaction percentage

20

on the website never fluctuated thereafter, even where Defendants purport to “update [the

21

statistics] on a monthly basis.” (Id. ¶¶ 8-11, 53.) This raises an inference that Defendants

22

were aware of dissatisfaction and chose to omit or conceal this information from their

23

website. Moreover, each Plaintiff alleges they viewed the StemGenex website, including

24

the positive customer statistics, made their decision to receive the treatments in reliance on

25

those statistics, and would not have paid for the treatments had they known the data was

26

false. (Id.) See Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1142 (9th Cir. 2012)

27

(defining a “material fact” as one where if it had not been omitted, one would have behaved

28

differently).
18
3:16-cv-02816-AJB-NLS

1

Lastly, Defendants’ argument that Plaintiffs “mischaracterize” the data is more of a

2

concern of semantics. Defendants argue that the data doesn’t report effectiveness of the

3

treatment and a lack of complaints, but rather, it reports “overall experience” with

4

StemGenex, whether the customer considers StemGenex a trusted partner in the treatment

5

of their disease, and whether the customer was satisfied with the “medical team” that

6

performed their treatment. (Doc. No. 33-1 at 18.) However, similar to Plaintiffs’ claims

7

under the UCL, FAL, and CLRA discussed above, Plaintiffs’ allegations are sufficient to

8

create the inference that the customer data was at the very least incomplete due to the

9

omitted information, and thus, false and misleading. See Strumlauf, 192 F. Supp. 3d at

10

1036.

11

Accordingly, the Court DENIES Defendants’ motion as to the fraud and negligent

12

misrepresentation claims regarding the misrepresentation of customer satisfaction

13

statistics.

14

C.

15

Plaintiffs append a claim for financial elder abuse on behalf of Plaintiff Ginsberg

16

and putative class members over the age of 65 against all Defendants. Plaintiffs allege

17

Defendants communicated false misrepresentations via the website and through

18

Defendants’ “Patient Advocates,” exerting undue influence which resulted in the loss of

19

money to Plaintiffs. (Doc. No. 24 at 49-52.) Plaintiffs further allege that the elders were

20

“influenced by the aggressive campaign of StemGenex, and the false statistics and graphs

21

making it appear that there were no unsatisfied consumers.” (Id. ¶ 167E.) Further, Plaintiffs

22

identify StemGenex, its employees, and managing agents, and “Patient Advocates” as the

23

“influencer[s]” and allege that they “drew the elders in with their representations,

24

particularly about the high number of people this had worked for/large number of satisfied

25

consumers.” (Id.) Plaintiffs allege that Defendants “occupied a position of trust when they

26

began to give [the elders] medical treatment over the website and phone” and thereafter

27

exerted undue influence in influencing them to purchase the treatments. (Id. ¶ 169A.)

28

Defendants move to dismiss Plaintiffs’ ninth cause of action because Plaintiffs failed to

Financial Elder Abuse Claim

19
3:16-cv-02816-AJB-NLS

1

plead it with sufficient particularity. (Doc. No. 33-1 at 20-22.) Specifically, Defendants

2

contend that Plaintiffs fail to distinguish between which Defendants committed the alleged

3

conduct, allege how Defendants stood in a position of trust to the elders, and identify the

4

“further misrepresentations” of the “Patient Advocates” that demonstrate an intent to

5

defraud. (Id.)

6

“[E]lder financial abuse occurs when a person or entity ‘[t]akes, secretes,

7

appropriates, obtains, or retains real or personal property of an elder or dependent adult for

8

a wrongful use or with intent to defraud, or both.’” Quintero Family Trust v. OneWest

9

Bank, F.S.B., No. 09-CV-1561-IEG (WVG), 2010 WL 392312, at *16 (S.D. Cal. Jan. 27,

10

2010) (quoting Cal. Wel. & Inst. Code § 15610.30(a)(1)). “Elder financial abuse also

11

occurs when a person or entity assists another in such conduct.” Id. § 15610.30(a)(2).

12

“Undue influence” is defined as “excessive persuasion that causes another person to act or

13

refrain from acting by overcoming that person’s free will and results in inequity.” Id. §

14

15610.70(a).

15

Unlike Plaintiffs’ claims for fraud and misrepresentation, their claim for financial

16

elder abuse fails to state with any specificity which particular Defendant did what, when it

17

was done, how it was fraudulent, and how it was a product undue influence. See Quintero

18

Family Trust, 2010 WL 392312, at *16. Defendants are correct that Plaintiffs must

19

distinguish each Defendant’s role in the alleged misconduct and by lumping Defendants

20

together, Plaintiffs fail to satisfy this requirement. See Moran v. Bromma, No. 13-cv-00487

21

JAM-CKD, 2014 WL 348952 at *4 (E.D. Cal. Jan. 31, 2014) (citing Levine v. Entrust Grp.,

22

Inc., C 12-03959, 2013 WL 2606407, at *5 (N.D. Cal. June 11, 2013) (noting that the Ninth

23

Circuit “has held that 9(b) prevents plaintiffs from lumping defendants together for

24

purposes of fraud allegations). Although Plaintiffs identify StemGenex, its employees,

25

managing agents, and “Patient Advocates” as the “influencers,” the identity of Defendants’

26

agents and their roles in the alleged misconduct remain unclear. See Orlando v. Carolina

27

Cas. Ins. Co., No. CIV F 07-0092 AWI SMS, 2007 WL 781598, at *8 (E.D. Cal. Mar. 13,

28

2007) (noting that “[b]ecause corporations speak through agents, allegations that a
20
3:16-cv-02816-AJB-NLS

1

corporation or its ‘agents’ committed fraud or made misrepresentations are generally

2

insufficient, and the specific identity of the agent must be alleged for purposes of Rule

3

9(b)”). Next, Plaintiffs allege undue influence was exerted upon the elders via two

4

channels: the website and through communications with Defendants and their “Patient

5

Advocates.” However, Plaintiffs fail to identify the “excessive persuasion” that compelled

6

the elders to pay for the stem cell treatments. The Court agrees with Defendants that an

7

elder prospective customer viewing the website on his or her own volition is not enough to

8

constitute “undue influence.” Moreover, Plaintiffs do not allege what was communicated

9

to the elders to wrongfully persuade them to purchase Defendants’ services to their alleged

10

detriment.1 Without more specificity, a claim for financial elder abuse cannot stand. See

11

Wel. & Inst. Code § 15610.70(b) (“Evidence of an inequitable result, without more, is not

12

sufficient to prove undue influence.”); Guccione v. JPMorgan Chase Bank, N.A., No. 14-

13

cv-4587 LB, 2015 WL 1968114, at *19 (N.D. Cal. May 1, 2015).

14
15

For the foregoing reasons, the Court GRANTS Defendants’ motion as to the claim
for financial elder abuse as currently plead.

16

D.

17

Plaintiffs’ fourth cause of action alleges Defendants are liable for statutory damages

18

under Cal. Health & Safety Code § 24176 because Defendants subjected Plaintiffs and

19

putative class members to medical experiments without first obtaining their informed

20

consent pursuant to Section 24175. Defendants move to dismiss this claim on the basis that

21

the StemGenex stem cell treatments are not actionable “medical experiments” under the

22

Code. (Doc. No. 33-1 at 22.) Plaintiffs retort that because Defendants interchangeably refer

23

to their treatments as “studies” and claim to be a “pioneer in research,” they project the

Human Experimentation Claim

24
25
26
27
28

1

The Court is cognizant of Plaintiffs’ attempt to expound upon how Defendants’ “Patient
Advocates” established a position of trust with elder prospective customers in their
Opposition. However, that detail is lacking from the SAC as currently pled.
21
3:16-cv-02816-AJB-NLS

1

idea that the stem cell treatments are a “frontier of medicine,” and thus, constitute “medical

2

experiments” under Section 24174(a). (Doc. No. 37 at 16.)

3

Section 24175(a) provides in part that “no person shall be subjected to any medical

4

experiment unless the informed consent of such person is obtained.” “Informed consent”

5

under section 24173 requires “a written consent form must be signed and dated, and the

6

subject must be informed both verbally and within the written consent form of certain

7

enumerated facts regarding the proposed medical experiment.” Perez v. Nidek Co., Ltd.,

8

657 F. Supp. 2d 1156, 1163 (S.D. Cal. 2009). To qualify as a “medical experiment,” the

9

use of a device must be “in the practice or research of medicine in a manner not reasonably

10

related to maintaining or improving the health of the subject or otherwise directly

11

benefiting the subject.” Cal. Health & Safety Code § 24174(a). See Trantafello v. Med. Ctr.

12

of Tarzana, 182 Cal. App. 3d 315, 320 n.2 (1986) (discussing that Section 24174 addresses

13

experiments conducted in the course of “pure research.”).

14

Defendants contend that their stem cell treatments fall outside the ambit of “pure

15

research” and the Court agrees. This notion is also corroborated by Plaintiffs’ allegations

16

in the SAC. For instance, Plaintiffs allege that each named Plaintiff sought the treatment

17

to “improve” their condition or disorder because StemGenex represented they could

18

“effectively treat degenerative diseases.” (Doc. No. 24 ¶ 34.) Further, Plaintiffs allege that

19

StemGenex advertises that their treatments “significantly improve one’s quality of life”

20

and that these representations are the bases on which Plaintiffs and putative class member

21

relied in purchasing the treatments. (Id. ¶ 43.) Based on the allegations as currently pled,

22

the Court finds the stem cell treatments are at least “reasonably related” to maintaining or

23

improving the health of prospective customers and do not constitute “pure research.” See

24

Perez, 657 F. Supp. 2d at 1164. To the extent that the stem cell treatments represent a fairly

25

newer body of research and development, the Court does not find the innovative nature of

26

the treatment to rise to the level requiring informed consent under the Code. See

27

Trantafello, 182 Cal. App. 3d at 320, n. 2.

28
22
3:16-cv-02816-AJB-NLS

1
2

Accordingly, the Court GRANTS Defendants’ motion as to Plaintiffs’ claim for
human experimentation.

3

E.

4

Plaintiffs’ fifth claim is against all Defendants for RICO under 28 U.S.C. § 1962(c),

5

which prohibits an enterprise from engaging in a pattern of racketeering conduct. Plaintiffs

6

claim that StemGenex is an enterprise through which Defendants Alexander and Lallande

7

conducted a pattern of racketeering conduct by advertising StemGenex’s false patient

8

satisfaction ratings on the website and accepting payment for the stem cell treatments over

9

the phone “in furtherance of their scheme.” (Doc. No. 24 at 42-44.) To state a RICO claim

10

under section 1962(c), “a plaintiff must allege (1) conduct (2) of an enterprise (3) through

11

a pattern (4) of racketeering activity.” Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th

12

Cir. 2007) (en banc). Defendants dispute the second, third, and fourth elements and argue

13

that Plaintiffs’ conclusory allegations do not allege specific facts to meet the pleading

14

standard for a RICO claim. At the outset, the Court finds Plaintiffs’ claim fails to meet the

15

“enterprise” element, and on that basis, dismisses Plaintiffs’ RICO claim. See e.g. Zappia

16

v. World Sav. F.S.B., No. 14cv1428 WQH (DHB), 2015 WL 11439034, at *10 (S.D. Cal.

17

June 19, 2015).

18

RICO Claim

1. Enterprise

19

“[T]o establish liability under § 1962(c), one must allege and prove the existence of

20

two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same

21

‘person’ referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533

22

U.S. 158, 161 (2001); see also Sever v. Alaska Pulp Corp., 978 F.2d 1529, 1533 (9th Cir.

23

1992) (explaining the RICO defendant must be distinct from the enterprise whose business

24

the defendant is conducting). “Therefore, for the purposes of a single action, a corporate

25

defendant cannot be both the RICO person and the RICO enterprise. . .” Sever, 978 F.2d at

26

1534.

27

Plaintiffs’ pleadings conflate this distinction. Plaintiffs’ SAC names five

28

Defendants: StemGenex Medical Group, StemGenex, Stem Cell Research Centre, Andre
23
3:16-cv-02816-AJB-NLS

1

P. Lallande, and Rita Alexander. Plaintiffs’ fifth cause of action for RICO is brought

2

against “All Defendants.” (Doc. No. 24 at 42.) In one breath, Plaintiffs allege that

3

Defendants Alexander and Lallande are the alter egos of StemGenex, (Doc. No. 24 ¶¶ 24-

4

25), while in the next, allege that StemGenex is the “enterprise” and Defendants Alexander

5

and Lallande are the persons conducting its affairs. (Id. at ¶¶ 126-127.) Additionally, since

6

Plaintiffs bring this claim against all Defendants, they effectively name StemGenex as a

7

RICO defendant while simultaneously identifying StemGenex as the enterprise. (Id. at 42.)

8

Plaintiffs are correct that the Supreme Court in Cedric Kushner Promotions clarified that

9

a corporate owner/employee is distinct from the corporation itself for purposes of satisfying

10

RICO’s “separateness” requirement. Id. at 163-65. However, as currently pled, the Court

11

cannot reconcile Plaintiffs’ alter ego theory of liability, that the “individuality and

12

separateness” of StemGenex, the other entities, and individuals have ceased, with

13

Plaintiffs’ contention that the RICO enterprise is distinct from its persons, i.e. that

14

StemGenex is separate from Defendants Alexander and Lallande.

15

Currently, the Court finds that Plaintiffs’ allegations are ambiguous and fail to put

16

Defendants on proper notice of their purported misconduct due to the confusion in

17

distinguishing the enterprise from the RICO defendants. Thus, the Court GRANTS

18

Defendants’ motion as to the RICO claim based upon Plaintiff’s failure to allege that an

19

enterprise exists separate and distinct from Defendants Alexander and Lallande. See

20

Zappia, 2011 WL 11439034, at *10 (dismissing plaintiff’s RICO claim for failure to allege

21

a “‘RICO defendant’ and a distinct ‘RICO enterprise.’”). Because Plaintiffs’ claim fails

22

under the “enterprise” prong, the Court need not discuss the remaining elements. Plaintiffs

23

will be given leave to amend to more clearly distinguish the RICO enterprise from the

24

RICO defendants in light of Plaintiffs’ alter ego liability theory.

25
26

CONCLUSION
In light of the above, the Court GRANTS IN PART and DENIES IN PART

27

Defendants’ motion to dismiss the SAC.

28

PREJUDICE Plaintiffs’ UCL, FAL, CLRA, fraud, and negligent misrepresentation claims

The Court DISMISSES WITHOUT

24
3:16-cv-02816-AJB-NLS

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as to the lack of efficacy misrepresentation, as well as Plaintiffs’ claims for human

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experimentation, financial elder abuse, and RICO. Plaintiffs are advised to correct the

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deficiencies noted herein by filing an amended complaint no later than May 11, 2017.

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IT IS SO ORDERED.

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Dated: April 6, 2017

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3:16-cv-02816-AJB-NLS