Vitamins Online v. Heartwise et al
Filing
198
MEMORANDUM DECISION AND ORDER denying 178 Heartwise's Rule 72 Objection to two orders issued by Magistrate Judge Paul M. Warner (Orders 155 and 177 ). The court does not consider any part of Judge Warner's orders to be clearly erroneous or contrary to law and affirms his rulings in both orders. Signed by Judge Dale A. Kimball on 7/11/2016. (eat)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
VITAMINS ONLINE, INC., a Delaware
corporation,
MEMORANDUM DECISION
AND ORDER
Plaintiff/Counterclaim Defendant,
vs.
Case No. 2:13-CV-982-DAK
HEARTWISE, INC., an Oregon
corporation d/b/a NATUREWISE,
Judge Dale A. Kimball
Defendant/Counterclaim Plaintiff.
This matter is before the court on the Defendant Heartwise, Inc. d/b/a NatureWise’s
(“NatureWise’s”) Rule 72 Objection1 to two orders issued by Magistrate Judge Paul M. Warner.
The objection has been fully briefed. The court concludes that a hearing would not significantly
aid its determination of the motion. Accordingly, the court issues the following Memorandum
Decision and Order based on the written submissions of the parties and the law and facts relevant
to the pending motion.
BACKGROUND
On October 30, 2013, Plaintiff Vitamins Online, Inc. (“Vitamins Online”) filed a
Complaint alleging that NatureWise was engaging in unfair competition and false and
misleading advertising regarding NatureWise’s Garcinia Cambogia and green coffee dietary
supplements. Specifically, Vitamins Online alleges that NatureWise falsely advertised that its
dietary supplements had ingredients and characteristics that they, in fact, did not have.
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Although Defendant filed the objection as both a Rule 72 Objection and a Rule 60(b)(1) Motion, Rule 72 applies to
Magistrate Judge Orders while Rule 60(b)(1) applies to orders directly from the District Judge. Therefore, the
objection is most appropriately a Rule 72 Objection, and the court will construe it as such.
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During discovery, Vitamins Online made multiple requests for samples of each lot of
NatureWise’s products at issue in this case to test the products to determine whether they
contained the ingredients and had the characteristics claimed by NatureWise’s advertisements.
Through those requests, Vitamins Online learned that NatureWise did not have samples of
numerous batches of products at issue in this case because, after the case was filed, NatureWise
sent the remaining samples of those products to independent labs for testing. In response to this
information, on August 4, 2015, Vitamins Online filed a Motion for Sanctions for Spoliation of
Evidence alleging that NatureWise caused relevant samples of its products to be destroyed to
prevent Vitamins Online from testing those products for compliance with NatureWise’s
assertions in its advertising.
On March 31, 2016, pursuant to a referral under 28 U.S.C. § 636(b)(1)(A), Magistrate
Judge Paul M. Warner issued an order granting Vitamins Online’s Motion for Sanctions for
Spoliation of Evidence (“Judge Warner’s First Order”). In his order, Judge Warner concluded
that NatureWise failed to preserve evidence that it had a duty to preserve, that Vitamins Online
was prejudiced by the lack of preservation of the evidence, and that NatureWise acted in bad
faith by failing to preserve the evidence. As a sanction, Judge Warner determined that Vitamins
Online is entitled to an adverse inference instruction that the labels of the products for which no
samples remain for testing (“Category 1 Products”) each bore all of the allegedly false ingredient
claims and that the products failed to meet those label claims.
In terms of products for which only two bottles remain (“Category 2 Products”) or for
which NatureWise has three or four bottles but is only willing to produce up to one bottle for
testing (“Category 3 Products”), Judge Warner ordered the parties to attempt to stipulate to a
testing facility and methodologies for testing the remaining products. If the parties could not
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stipulate to a facility and methodologies, Judge Warner ordered the parties to submit proposed
testing methodologies and facilities to the court. Due to a failure to stipulate, the parties did
submit proposed testing methodologies and facilities to the court. Upon receiving and reviewing
the parties’ proposals, Judge Warner issued an order on April 28, 2016, adopting Vitamins
Online’s proposed testing facility and methodologies (“Judge Warner’s Second Order”).
On May 6, 2016, NatureWise filed its Rule 72 Objection to Judge Warner’s First Order
and Judge Warner’s Second Order. Specifically, NatureWise objects to the adverse inference as a
sanction for spoliation of evidence and to the adoption of Vitamins Online’s proposed testing
facility and methodologies. Vitamins Online filed an opposition to NatureWise’s objection, and
NatureWise filed a reply.
DISCUSSION
NatureWise objects to Judge Warner’s order entitling Vitamins Online to an adverse
inference against NatureWise as a sanction for spoliation of evidence and adopting Vitamins
Online’s proposed testing facility and methodologies. Vitamins Online argues that NatureWise’s
objection to the adverse inference is untimely and that all of NatureWise’s objections fail on the
merits. The court will first address the timeliness of NatureWise’s objection to the adverse
inference for spoliation of evidence, and then the court will address the merits of both of
NatureWise’s objections.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 72(a), a district court is required to “consider
timely objections [to a nondispositive order from a magistrate judge] and modify or set aside any
part of the order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); see also 28
U.S.C. § 636(b)(1)(A) (“A judge of the court may reconsider any pretrial matter under this
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subparagraph (A) where it has been shown that the magistrate judge’s order is clearly erroneous
or contrary to law.”). Under Federal Rule of Civil Procedure 72(b) relating to dispositive
motions, “[t]he district judge must determine de novo any part of the magistrate judge’s
disposition that has been properly objected to.” Fed. R. Civ. P. 72(b). The de-novo standard
applies both to magistrate judge rulings on dispositive motions and to rulings from a magistrate
that have “an identical effect” to a ruling on a dispositive motion. See, e.g., Ocelot Oil Corp. v.
Sparrow Indus., 847 F.2d 1458, 1462 (10th Cir. 1988) (clarifying that motions that are not
dispositive on their face are “nevertheless to be treated as such a motion when they have an
identical effect”).
In this case, NatureWise argues that the court should apply the de-novo standard instead
of the clearly erroneous or contrary-to-law standard to review Judge Warner’s orders because
Judge Warner’s orders have an identical effect to a dispositive order. The court disagrees with
NatureWise’s argument. In order for Vitamins Online to succeed on its claims for false
advertising under the Lanham Act, Vitamins Online must show that NatureWise (1) made a false
or misleading representation of fact through commercial advertising or product promotion, (2) in
commerce, (3) that was likely to cause confusion or mistake as to the characteristics of the goods
or services, and (4) that injured Vitamins Online. See 15 U.S.C. § 1125(a)(1) (2012); Cottrell,
Ltd. v. Biotrol Int’l, Inc., 191 F.3d 1248, 1252 (10th Cir. 1999) (citations omitted). Some courts
also list materiality as an additional element of a Lanham Act claim, see Novell, Inc. v. Network
Trade Center, Inc., 25 F. Supp. 2d 1218, 1227-28 (D. Utah 1997) (listing as an additional
element that “the deception is material in that it is likely to influence purchasing decisions”), but
the Tenth Circuit has not yet decided “whether the Lanham Act imposes a materiality inquiry,”
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Gen. Steel Domestic Sales, LLC v. Chumley, No. 14-1119, 2015 WL 4591924, at *3 (10th Cir.
July 31, 2015).
The adverse inference ordered by Judge Warner only allows the jury to infer information
regarding the first prong of Vitamins Online’s Lanham Act claim: that NatureWise made a false
or misleading representation of fact through commercial advertising. That adverse inference is
not dispositive of Vitamins Online’s claim for two major reasons. First, the adverse inference
only deals with the first prong of a Lanham Act claim. In order to succeed on its claim, Vitamins
Online must present evidence to establish that the representations were made in commerce, that
they were likely to cause confusion or mistake, and that they injured Vitamins Online. Vitamins
Online may also be required to prove that the representations were material. Second, the adverse
inference only allows the jury to infer information in the absence of tangible evidence, but the
adverse inference does not conclusively establish that the information inferred is true. If
NatureWise is able to present evidence counter to the adverse inference, the jury can weigh all of
the evidence to determine whether to give credit to the adverse inference or the evidence
contrary to the inference.
Because the court concludes that Judge Warner’s orders are not dispositive and do not
have an effect identical to a dispositive order, the court will review NatureWise’s objections
using the clearly erroneous or contrary-to-law standard.
TIMELINESS OF OBJECTIONS TO A MAGISTRATE JUDGE’S ORDER
Federal Rule of Civil Procedure 72(a) requires that any objection to a magistrate judge’s
pretrial order “not dispositive of a party’s claim or defense” be made “within 14 days after being
served a copy. Fed. R. Civ. P. 72(a). “A party may not assign as error a defect in the order not
timely objected to.” Id. NatureWise argues that the time to file an objection runs from the entry
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of any order that supplements an original order. See McMurtry v. Aetna Life Ins. Co., 2006 U.S.
Dist. LEXIS 81138, at *3 n.1 (W.D. Okla. Nov. 3, 2006) (stating that the time to appeal an
interlocutory order runs from the entry of a supplemental order approving certification); see also
Allen v. Sybase, Inc., 468 F.3d 642, 658 (10th Cir. 2006) (stating that “a party’s failure to seek
timely review [under Rule 72] does not strip a district court of its power to revisit the issue”).
The Tenth Circuit “has adopted a firm waiver rule under which a party who fails to make a
timely objection to a magistrate judge’s findings and recommendations waives appellate review
of both factual and legal questions.” Morales-Fernandez v. I.N.S., 418 F.3d 1116, 1119 (10th
Cir. 2005).
Judge Warner’s First Order was issued in this case on March 31, 2016. In that order,
Judge Warner concluded that Vitamins Online was entitled to an adverse inference regarding
Category 1 Products. In the same order, Judge Warner also required each party to submit
proposed testing methodologies and facilities to the court for the Category 2 Products and the
Category 3 Products if the parties could not stipulate to a testing facility and methodologies for
the remaining products. Judge Warner’s Second Order adopted Vitamins Online’s proposed
testing facility and methodologies on April 28, 2016. NatureWise filed its objection to both
orders on May 6, 2016. Because NatureWise’s objection was filed more than 14 days after Judge
Warner’s First Order but less than 14 days after Judge Warner’s Second Order, determining
whether the objection was timely is dependent on which order the time period is calculated from.
To the extent that a Magistrate Judge’s order resolves discrete issues independent of other
orders, the time period for filing objections under Rule 72(a) is calculated from the order that
independently resolves the discrete issue against which the objection is filed. See S.E.C. v.
McNaul, 277 F.R.D. 439, 442 (D. Kan. 2011) (“However, the Magistrate’s current Order is a
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discrete order separate from its previous Order . . . . Thus, defendants may object to this Order
within the parameters of Rule 72(a).”). In this case, Judge Warner’s First Order resolved the
discrete issue of the appropriate sanction for spoliation of evidence by entitling Vitamins Online
to an adverse inference. However, the issue of the appropriate testing facility and methodologies
was not resolved until Judge Warner’s Second Order.
Therefore, the court concludes that NatureWise’s objection to the adverse inference is
untimely, but Naturewise’s objection to the testing facility and methodologies is timely.
ADVERSE INFERENCE FOR SPOLIATION OF EVIDENCE
Even if the court considered NatureWise’s objection to the adverse inference for
spoliation of evidence to be timely, the objection still fails because Judge Warner’s decision was
not clearly erroneous or contrary to law. The “clearly erroneous” standard under Rule 72(a)
“applies to factual findings.” Brigham Young Univ. v. Pfizer, Inc., No. 2:06-CV-890-TS-BCW,
2010 WL 3855347, at *2 (D. Utah Sept. 29, 2010). In order for a district court to overturn a
magistrate judge’s decision as clearly erroneous, the court must be left with a “definite and firm
conviction that a mistake has been committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d
1458, 1464 (10th Cir. 1988) (quoting United States v. United States Gypsum Co., 333 U.S. 364,
395 (1948)). “Under the ‘contrary to law’ standard, the district court conducts a plenary review
of the magistrate judge’s purely legal determinations, setting aside the magistrate judge’s order
only if it applied an incorrect legal standard.” Williams v. Vail Resorts Dev. Co., No. 02-CV-16J, 2003 WL 25768656, at *2 (D. Wyo. Nov. 14, 2003) (citation omitted). “In sum, it is extremely
difficult to justify alteration of the magistrate judge’s nondispositive actions by a district judge.”
Id. (citations omitted).
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Judge Warner determined that an adverse inference was an appropriate sanction for
spoliation of evidence by concluding that the sanction is in the court’s discretion and is
determined by considering “a variety of factors, two of which generally carry the most weight:
(1) the degree of culpability of the party who lost or destroyed the evidence, and (2) the degree
of actual prejudice to the other party.” Jordan F. Miller Corp. v. Mid-Continent Aircraft Service,
Inc., No. 97-5089, 1998 WL 68879, at *4 (10th Cir. Feb. 20, 1998). NatureWise does not appear
to argue that Judge Warner applied the wrong legal standard. Instead, NatureWise argues that the
adverse inference sanction in Judge Warner’s order is too broad in its application because it
relates to products that never actually existed, that were not sold to consumers, or that were never
distributed in the United States.
NatureWise’s objection seems to be based on an incorrect assumption about the scope
and force of the adverse inference granted in Judge Warner’s order. Although Judge Warner does
not specify whether the adverse inference should be mandatory or permissive, the court interprets
Judge Warner’s order, and intends to implement it, as a permissive adverse inference. Permissive
adverse inferences “allow, but do not require, the factfinder to infer a given fact.” Arch Ins. Co.
v. Broan-NuTone, LLC, 509 F. App’x 453, 459 (6th Cir. 2012). In other words, although the
factfinder will consider the adverse inference in reaching its conclusions, the factfinder is free to
accept or reject the inference based on the reasons provided for the destruction of evidence and
based on any other evidence that is presented that contradicts the inference. A permissive
adverse inference is helpful to a plaintiff because it may reduce the plaintiff’s evidentiary burden
by allowing a jury to infer elements of the plaintiff’s claim that the plaintiff lacks evidence to
prove and because it comes “dressed in the authority of the court, giving it more weight than if
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merely argued by counsel.” Id. But a permissive adverse inference does not prevent a defendant
from offering evidence to contradict all or a portion of the inference.
Because the adverse inference in this case is permissive, NatureWise will be permitted to
offer evidence to contrary to the adverse inference, including evidence that some of its products
subject to the adverse inference never actually existed, were not sold to consumers, or were
never distributed in the United States. Given the ability of NatureWise to offer evidence contrary
to the adverse inference, the court concludes that Judge Warner’s sanction was a proportional
response to NatureWise’s offense that achieved both the need to deter NatureWise’s spoliation of
evidence and to restore Vitamins Online to “the position [it] would have been in but for the
spoliation.” In re Black Diamond Min. Co., LLC, 514 B.R. 230, 242 (E.D. Ky. 2014); see also
Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir. 2009) (“[A] proper spoliation sanction should
serve both fairness and punitive functions.”); Bonds v. District of Columbia, 93 F.3d 801, 808
(D.C. Cir. 1996) (“The choice of sanctions should be guided by the ‘concept of proportionality’
between offense and sanction.”). Therefore, the court concludes that Judge Warner’s adverse
inference was neither clearly erroneous nor contrary to law.
NatureWise also argues that it did not demonstrate bad faith because it simply sent its
products to a third-party facility to test the veracity of Vitamins Online’s claims and that
Vitamins Online was not prejudiced by the lack of evidence because the products were tested
against the purportedly false label claims. NatureWise appears to be arguing that Judge Warner
failed to consider relevant facts in reaching his conclusions. However, Judge Warner considered
all of the arguments offered by NatureWise in reaching his decision. Judge Warner concluded
that the decision to send the final bottles of some lots for testing while simultaneously arguing
that it had to keep at least two bottles of other lots due to regulations from the Food and Drug
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Administration (FDA) evidenced bad faith. Judge Warner also concluded that Vitamins Online
was prejudiced because, although the lots at issue were sent for testing, the testing did not cover
the full scope of Vitamins Online’s claims and did not allow Vitamins Online to match label
claims to each lot. Because Judge Warner properly considered all of the facts offered by
NatureWise in its objection, the court concludes that Judge Warner’s conclusions were not
clearly erroneous.
ADOPTION OF PROPOSED TESTING FACILITY AND METHODOLOGIES
Due to the limited supply of Category 2 Products and Category 3 Products, Judge Warner
ordered the parties to attempt to stipulate to the testing facility and testing methodologies for
testing the remaining products and, if the parties could not reach an agreement, to submit
proposed testing methodologies and facilities to the court. NatureWise and Vitamins Online were
not able to agree, so each party submitted a proposed testing facility and proposed testing
methodologies. Judge Warner considered the proposals and issued an order accepting Vitamins
Online’s proposal. NatureWise objects to Judge Warner’s acceptance of Vitamins Online’s
proposed testing facility and methodologies because (1) sufficient bottles of NatureWise’s
products exist for both NatureWise and Vitamins Online to conduct independent testing, (2)
Judge Warner failed to recognize NatureWise’s objection to a single facility and testing
methodologies, and (3) Vitamins Online’s proposed testing methodologies allow testing beyond
the scope of what has been alleged by Vitamins Online.
The court concludes that none of NatureWise’s reasons for objecting establish that Judge
Warner’s order was clearly erroneous or contrary to law. First, Judge Warner was fully aware of
the number of bottles of product that were available for the Category 2 Products and the
Category 3 Products. Judge Warner was also aware of the minimum number of capsules that are
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required to perform the requested tests. None of this evidence is new, and all of it was properly
considered by Judge Warner. Despite being aware of all of these facts, Judge Warner, in his
discretion, decided to implement Vitamins Online’s proposal to use a single testing facility and a
single set of testing methodologies. The court concludes that the number of available bottles of
product for testing did not render Judge Warner’s decision clearly erroneous.
In addition to deciding to implement Vitamins Online’s proposal due to the limited
supply of products for testing, Judge Warner also decided to implement that proposal because
NatureWise did not oppose the proposal in its opposition memorandum. In his order, Judge
Warner stated, “Defendant did not oppose this proposal [for the court to specify a testing facility
and testing methodologies] in its memorandum in opposition.” Mem. Decision and Order, at 8,
ECF No. 155. NatureWise does not dispute that it failed to oppose the proposal in its opposition
memorandum. Instead, NatureWise points to an exhibit to Vitamins Online’s motion in which
NatureWise offers an alternative proposal as evidence that it opposed Vitamins Online’s
proposal. However, if NatureWise wanted Judge Warner to consider its opposition to Vitamins
Online’s proposal, NatureWise should have stated its opposition in its opposition memorandum.
The court concludes that Judge Warner’s decision was not clearly erroneous for failing to
recognize an opposition not presented to the court by the opposing party.
Finally, although NatureWise argues that Vitamins Online’s proposed testing
methodologies allow for testing beyond the scope of the allegations in the Complaint, Vitamins
Online’s proposal for testing included a chart correlating each proposed test with a false
advertising claim set forth in the Complaint. Therefore, the court concludes that Judge Warner’s
decision to accept Vitamins Online’s testing plan is not clearly erroneous for allowing testing
beyond the scope of the allegations because each test is correlated with a claim in the Complaint.
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As a final note, in an attempt to preserve its objections, NatureWise argues that Judge
Warner’s orders do not prevent it from conducting its own testing to rebut Vitamins Online’s
tests and methodologies. The court concludes that NatureWise’s argument and attempt to
conduct its own testing is not in compliance with Judge Warner’s order. In his order, Judge
Warner explained that he was going to implement Vitamins Online’s proposal, which precluded
the parties from challenging the reliability of the testing methodologies. Judge Warner also stated
that, in the absence of a stipulation by the parties, “the court will decide which facility and
methodologies shall be used.” Mem. Decision and Order, at 8, ECF No. 155 (emphasis added).
The court concludes that Judge Warner’s order does not allow for NatureWise to conduct
independent testing to rebut the tests and methodologies ordered by the court.
CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that NatureWise’s Rule 72
Objection to two orders issued by Magistrate Judge Paul M. Warner is DENIED. The court does
not consider any part of Judge Warner’s orders to be clearly erroneous or contrary to law and
affirms his rulings in both orders.
DATED this 11th day of July, 2016.
BY THE COURT:
_________________________________________
DALE A. KIMBALL
United States District Judge
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