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Nutrition Distribution, LLC v. Enhanced Athlete, Inc.

United States District Court, E.D. California

May 30, 2018

NUTRITION DISTRIBUTION, LLC, an Arizona limited liability company, Plaintiff,
v.
ENHANCED ATHLETE, INC., a Wyoming corporation; GILMORE ENGINEERING, INC., an unincorporated association; SCOTT E. CAVELL, an individual; CHARLES ANTHONY HUGHES, an individual; and DOES 1 through 10, inclusive, Defendants.

          ORDER DENYING MOTION FOR SANCTIONS

          TROY L. NUNELY UNITED STATES DISTRICT JUDGE

         This matter is before the Court pursuant to Plaintiff Nutrition Distribution, LLC's (“Plaintiff”) Motion for Sanctions (Mot. for Sanctions, ECF No. 26.) against Defendants Enhanced Athlete, Inc. (“EA”) and Scott Cavell (“Cavell”) (collectively, “Defendants”). Defendants filed an opposition (Opp. to Mot. for Sanctions, ECF No. 35), and Plaintiff filed a reply, (Reply to Mot. for Sanctions, ECF No. 41). For the reasons set forth below, the Court hereby DENIES Plaintiff's Motion for Sanctions. (ECF No. 26.)

         I. Factual and Procedural Background

         On October 5, 2017, Plaintiff filed a complaint against Defendants for false advertising in violation of the Lanham Act § 43(a)(1)(B) and violation of the Civil Racketeer Influenced and Corrupt Organizations Act. (ECF No. 1.) The complaint alleges that Defendants, who market and sell supplements to body builders, gym users, fitness enthusiasts, and athletes, falsely advertised several of its products containing 2, 4-Dinitrophenol (“DNP Products”). (ECF No. 1 at 2-3.) Specifically, the complaint alleges that Defendants promised consumers “numerous purported benefits without mentioning, and in some instances expressly denying any long term negative side effects, and in other cases disingenuously stating that such DNP Products are not yet safe for human consumption . . . even though their sale and extensive promotion by Defendants clearly implies that Defendants intend such products to be ingested.” (ECF No. 1 at 2-3.) Thus, Plaintiff alleges “Defendants knew, or should have known that its DNP Products are not recognized as safe and effective for any of the uses suggested by Defendant[s][, ] and therefore Defendant[s] [have] knowingly and materially participated in a false, misleading and dangerous advertising campaign through wire transmissions to promote and sell its [DNP Products].” (ECF No. 1 at 3.)

         On September 17, 2017, weeks before Plaintiff initiated this lawsuit, EA emailed a newsletter (“Newsletter”) to its customers, informing them of a previous lawsuit Plaintiff filed against it, and encouraging them to take action and voice their opinions regarding this lawsuit. (ECF No. 26-1 at 44.) The Newsletter explained that Tauler Smith LLP, Plaintiff's attorney, had a history of filing these types of lawsuits and “ha[s] been fairly successful extorting small business owners for tens of thousands of dollars.” (ECF No. 26-1 at 44.) It stated that Plaintiff and his attorney “were attempting to take away your right to choose what you can and cannot experiment on yourself.” (ECF No. 26-1 at 44.) The Newsletter then described actions taken in an “equally baseless” lawsuit, where the defendant's supporters contacted the plaintiff's law firm to express their views, and in some cases took improper and illegal action to disrupt the firm in an effort to persuade the plaintiff to withdraw the lawsuit. (ECF No. 26-1 at 45-46.)

         On November 17, 2017, EA issued a press release (“Press Release”) stating that “Enhanced Athlete claims that [Plaintiff] is really in the business of shakedown lawsuits to coerce supplement companies to pay a relatively small sum of money to settle the matter or else face substantial legal fees defending against [Plaintiff's] meritless claims.” (ECF No. 26-1 at 6.) The Press Release also claimed that Plaintiff “cannot show - and has never been able to show - that it has suffered any actual damage because there is no causal connection between the alleged false advertising by [Plaintiff's] targets and [Plaintiff's] alleged lost sales.” (ECF No. 26-1 at 6.)

         On November 19, 2017, Cavell sent a mass email (“Mass Email”) to EA's customers entitled “Enhance Athlete wins another battle in court!!” (ECF No. 26-1 at 12-13.) The Mass. Email began: “We wanted to give you, our fans and friends, an update on the lawsuit against us. So far Tauler has lost EVERY motion filed against us so far.” (ECF No. 26-1 at 12.) It then stated that EA is in “the midst of shutting down [Tauler's] entire shake down business model, ” and included a press release for the Mass. Email recipients to share. (ECF No. 26-1 at 12-13.) Cavell also wrote a Facebook post (“Facebook Post”) including the same language. (ECF No. 26-1 at 9-10.)

         II. Standard of Law

         A district court “has the inherent authority to impose sanctions for bad faith, which includes a broad range of willful improper conduct.” Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001). “The most common utilization of inherent powers is a contempt sanction levied to ‘protect[] the due and orderly administration of justice' and ‘maintain[] the authority and dignity of the court.'” Primus Auto. Fin. Servs. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) (quoting Cooke v. United States, 267 U.S. 517, 539 (1925)). However, “[b]efore awarding sanctions under its inherent powers, however, the court must make an explicit finding that counsel's conduct ‘constituted or was tantamount to bad faith.'” Id. (quoting Roadway Exp., Inc. v. Piper, 447 U.S. 752, 767 (1980)).

         A party demonstrates bad faith by where it “knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purpose of harassing an opponent.” Id. at 649. “A party also demonstrates bad faith by ‘delaying or disrupting the litigation or hampering enforcement of a court order.'” Id. (quoting Hutto, 437 U.S. at 689 n.14). “The bad faith requirement sets a high threshold, ” and is not necessarily met even when a litigant's behavior is outrageous, inexcusable, and appalling. Id. “A court must, of course, exercise caution in invoking its inherent power, and it must comply with the mandates of due process, both in determining that the requisite bad faith exists and in assessing fees.” Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991). “Because of their very potency, inherent powers must be exercised with restraint and discretion.” Id. at 44.

         III. Analysis

         A. The Newsletter

         Plaintiff first argues that the Newsletter was a solicitation for “recipients to engage in a campaign to harass [Plaintiff and its counsel], in order to obtain settlement leverage in this action, ” and thus constituted bad faith. (ECF No. 26 at 10.) However, the Court is unpersuaded that an alleged solicitation made weeks before the commencement of this action was done so “in an effort to create leverage” in this action. Therefore, the Court finds Defendants did not act in bad faith on this basis.

         B. The Press Release, Mass. ...


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