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Youngevity International v. Smith

United States District Court, S.D. California

July 5, 2019

Youngevity International, et al., Plaintiffs,
v.
Todd Smith, et al., Defendants.

          ORDER (1) DENYING IN PART AND GRANTING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AS TO PLAINTIFFS' FIRST CAUSE OF ACTION (2) DENYING PLAINTIFFS' MOTION TO EXCLUDE TESTIMONY OF JOSHUA PLANT (3) DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AS TO SUBPART G OF PLAINTIFFS' FIRST CAUSE OF ACTION [ECF NOS. 300, 559]

          HONORABLE BARRY TED MOSKOWITZ UNITED STATES DISTRICT JUDGE

         Before the Court is a motion for summary judgment by Wakaya Perfection, LLC, et al. (“Defendants” or “the Wakaya parties” or “Wakaya”) as to the first cause of action in the Fourth Amended Complaint (ECF No. 269 (“FAC”)) for false advertising under the Lanham Act. (ECF No. 300 (“Defs.' MSJ I”).) Youngevity International, et al. (“Plaintiffs” or “the Youngevity parties” or “Youngevity”) move for summary judgment as to subpart G of the first cause of action (“FAC I.G”) for false advertising under the Lanham Act with respect to the curcumin content in Wakaya turmeric and also move to exclude the testimony of Defendants' rebuttal expert, Dr. Joshua Plant. (ECF No. 559 (“Pls.' MSJ I.G & Mot. Excl.”).) For the reasons discussed below, the Court denies in part and grants in part Defendants' motion for summary judgment, denies Plaintiffs' motion to exclude the testimony of Dr. Plant, and denies Plaintiffs' motion for summary judgment.

         STANDARD

         Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure if the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Anderson, 477 U.S. at 323.

         On cross motions for summary judgment, a court “evaluate[s] each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences.” ACLU v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (internal citations omitted). The burdens faced by the opposing parties vary with the burden of proof they will face at trial. When the moving party bears the burden of proof at trial, “‘his showing must be sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party.'” Indep. Cellular Tel., Inc. v. Daniels & Assocs., 863 F.Supp. 1009, 1113 (N.D. Cal. 1994) (quoting Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. 465, 487-488 (1984)). By contrast, when the moving party does not bear the burden of proof at trial, “the [moving party] need only point to the insufficiency of the [nonmoving party's] evidence to shift the burden to the [nonmoving party] to raise genuine issues of fact as to each claim by substantial evidence. Id. If the nonmoving party then fails to raise a genuine issue of fact, the court should grant summary judgment in favor of the moving party. Id.

         The court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “Credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, [when] he [or she] is ruling on a motion for summary judgment.” Anderson, 477 U.S. at 255.

         DISCUSSION

         In its first cause of action, Youngevity alleges false advertising claims under the Lanham Act in eight subparts, A through H. (See ECF No. 269 (“Fourth Amended Complaint” or “FAC”), 9-40.) Wakaya moves for summary judgment as to the entirety of Youngevity's first cause of action. (Defs.' MSJ I.) Youngevity moves for summary judgment as to subpart G and also moves to exclude the testimony of Defendants' rebuttal expert, Dr. Joshua Plant. (Pls.' MSJ I.G & Mot. Excl.)

         I. Liability Under § 43(a) of the Lanham Act

         Under § 43(a) of the Lanham Act, codified as 15 U.S.C. § 1125(a), false advertising is a distinct basis for liability. See Lexmark Int'l, Inc., v. Static Control Components, Inc., 572 U.S. 118, 122 (2014). The Act creates a cause of action imposing civil liability on:

[a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities.

POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, 107-08 (2014) (quoting 15 U.S.C. § 1125(a)(1)(B)).

         In the Ninth Circuit, there are five elements to a false advertising claim:

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

Skydive Arizona, Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012) (citing 15 U.S.C. § 1125(a)(1)(B)); Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997)). Defendants claim that Plaintiffs cannot establish a genuine dispute of material fact as to elements one, two, three, and five, but concede that there is no dispute with respect to the fourth element.

         To constitute commercial advertising or a promotion, a statement of fact must be:

(1) commercial speech; (2) by the defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a “classic advertising campaign, ” but may consist instead of more informal types of “promotion, ” the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry.

Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1054 (9th Cir. 2008) (citing Coastal Abstract Serv., Inc., First American Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999)).

         To demonstrate falsity, “a plaintiff may show that the statement was literally false, either on its face or by necessary implication, or that the statement was literally true but likely to mislead or confuse consumers.” Southland Sod Farms, 108 F.3d at 1139. Because the evaluation of whether an advertising claim is literally false requires analyzing the claim “in its full context, ” a claim may be “literally false by necessary implication.” Id. (citing Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 946 (3d Cir. 1993) (holding that a company made a literally false claim even when its assertion of superiority over its competitors was done implicitly)). Moreover, “[e]ven if an advertisement is not literally false, relief is available under § 43(a) of the Lanham Act if it can be shown that the advertisement has misled, confused, or deceived the consuming public.” Id. at 1140.

         When a claim is literally false, a plaintiff need not provide evidence on whether the claim was deceptive or material. See Pizza Hut, Inc. v. Papa John's Int'l, Inc., 227 F.3d 489, 497 (5th Cir. 2000) (“[W]hen the statements of fact at issue are shown to be literally false, the plaintiff need not introduce evidence on the issue of the impact the statements had on consumers [because] [i]n such a circumstance, the court will assume that the statements actually misled consumers.”); Logan v. Burgers Ozark Cty. Cured Hams Inc., 263 F.3d 447, 462 (5th Cir. 2001) (holding that when a plaintiff established that defendant made literally false statements, arguments that those statements “did not mislead [] customers and that the advertising did not affect their purchasing decision [were] inconsequential”); American Home Prods. Corp. v. Johnson & Johnson, 577 F.2d 160, 165 (2d Cir. 1978) (“Deceptive advertising or merchandising statements may be judged in various ways. If a statement is actually false, relief can be granted on the court's own findings without reference to the reaction of the buyer or consumer of the product.”).

         While materiality in false advertising claims is “typically proven through consumer surveys, nothing in the Lanham Act, nor under [9th Circuit] precedents, requires a plaintiff to use such surveys.” Skydive Arizona, Inc, 673 F.3d at 1110-11 (holding that a declaration may support a finding of materiality).

         When determining damages under the Lanham Act, the court, “‘in its discretion, ' may award ‘(1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action'” for a a violation under section 43(a). Id. at 1111-12 (quoting 15 U.S.C. § 1117(a)) (emphasis in original). The district court assesses “any damages sustained by the plaintiff in the same manner as in tort damages: the reasonably foreseeable harms caused by the wrong.” Id. at 1112 (internal quotations omitted) (citing DSPT Int'l, Inc. v. Nahum, 624 F.3d 1213, 1222 (9th Cir. 2010)).

         “[B]ecause of the possibility that a competitor may suffer future injury, as well as the additional rationale underlying section 43(a)-consumer protection-a competitor need not prove injury when suing to enjoin conduct that violates section 43(a).” Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 210 (9th Cir. 1989). Moreover, “an inability to show actual damages does not alone preclude a recovery under section 1117.” Southland Sod Farms, 108 F.3d at 1146 (internal quotations omitted) (citing Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1411 (9th Cir. 1993)). In the Ninth Circuit, “the preferred approach allows the district court in its discretion to fashion relief, including monetary relief, based on the totality of the circumstances.” Id.

         Finally, the Ninth Circuit emphasizes that § 1117 “confers a wide scope of discretion upon the district judge in fashioning a remedy.” Skydive Arizona, Inc, 673 F.3d at 1110-11 (internal quotations omitted) (quoting Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117, 121 (9th Cir. 1968)). “Section 1117 demands neither empirical quantification nor expert testimony to support a monetary award of actual damages; many sources can provide the requisite information upon which a reasonable jury may calculate damages.” Id. at 1113.

         II. Wakaya's Arguments in Support of Summary Judgment

         As a threshold matter, before analyzing the various statements that Youngevity alleges are actionable as false advertising under § 43(a), the Court considers several arguments that Defendants raise as reasons to grant its motion for summary judgment with respect to most or all of the subparts within Plaintiffs' first cause of action.

         A. Injury

         Defendants argue that summary judgment should be granted because Plaintiffs have not established “either the fact or amount of damages attributable to the conduct alleged in Count I.” (Defs.' MSJ I, 8:10:11.) But, as stated above, “an inability to show actual damages does not alone preclude a recovery under section 1117 [of the Lanham Act].” Southland Sod Farms, 108 F.3d at 1146. In addition, to the extent that Plaintiff seeks injunctive relief based on its first cause of action, (see FAC 77:16-79:16), granting summary judgment because Plaintiffs have not sufficiently established damages is not appropriate. See Harper House, Inc., 889 F.2d at 210.

         Moreover, Plaintiffs provide several sources of evidence upon which a reasonable jury could calculate damages for violations under § 43(a) of the Lanham Act. See Skydive Arizona, Inc, 673 F.3d at 1113. A declaration by Youngevity CEO Steve Wallach demonstrates that Youngevity's sales decreased during the time period in which Defendants began allegedly engaging in false advertising. (ECF No. 376 (“Pls.' Opp'n”), 8:25-26 (citing ECF No. 340-1).) Plaintiffs' expert, Mr. Bergmark, links Youngevity's missed revenue projections with corresponding sales earned by former Youngevity distributors who went to work for Wakaya. (Id. at 8:19-23 (citing ECF No. 318-3, p. 55-57) (“I understand that at least the primary source of Wakaya's revenues were the result of sales generated by Defendants in this matter who had previously worked with Youngevity.”).) Thus, the Court determines that the issue of damages is more appropriately reserved for a jury.

         B. Vicarious Liability

         Defendants also argue that a statement made by a Wakaya distributor (also known as “Wakaya Ambassador”) may not be a basis for holding Wakaya liable under § 43(a). “It is well established that traditional vicarious liability rules ordinarily make principals or employers vicariously liable for acts of their agents or employees in the scope of their authority or employment.” Operation Tech., Inc. v. Cyme Int'l T & D Inc., 2016 WL 6246806, at *4 (C.D. Cal. Mar. 31, 2016) (citing Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 756 (1998) (quotation omitted). The question for the Court to resolve is whether there is sufficient evidence for a jury to find that the Wakaya Ambassadors are agents of Wakaya for purposes of Lanham Act liability. See Id. The Court concludes that there is.

         First, “[w]hether or not a principal holds out the purported agent as an agent by calling them such does not determine the scope of the relationship.” Id. (citing Restatement (Third) of Agency § 1.02 (2006)). Thus, the fact that Wakaya Ambassadors are classified as independent contractors within Wakaya Policies and Procedures is not sufficient to establish the absence of a genuine issue of material fact as to whether the Ambassadors are agents of Wakaya. (See Defs.' MSJ I, 2:19-3:1.)

         Second, Defendants only argue that the Wakaya Ambassadors do not speak on behalf of Wakaya or any other individual. However, Defendants do not challenge that the Ambassadors engaged in the allegedly false advertising for the purpose of attracting distributors and increasing sales. The Wakaya Ambassadors who relied on the allegedly false advertising to carry out their objective of increasing the number of Wakaya distributors were acting squarely within their roles as representatives of Wakaya. Moreover, Plaintiffs assert that Wakaya exercises control over the Ambassadors by reserving the right to terminate their accounts for unapproved conduct. (See Pls.' Opp'n, 10:2-4 (citing ECF No. 340-2, p. 42-43).) Thus, when construing the facts in the light most favorable to Plaintiffs, the Court cannot say that there is no dispute of material fact as to whether the Wakaya Ambassadors who made the alleged false claims were acting as agents of Wakaya within the scope of their authority granted by Wakaya.

         C. Remedies Under § 43(a) Are Available to a Private Party

         Wakaya argues that Youngevity is attempting to “use the Lanham Act to create a private right of action” under federal administrative regulations.[1] (Defs.' MSJ I, § III.) However, Defendants fail to establish that any federal statute or regulation would bar Plaintiffs' false advertising claims. The U.S. Supreme Court has held that in particular, the Food, Drug, and Cosmetic Act (FDCA) does not preclude a private party from bringing a Lanham Act claim challenging advertisements of products that are also regulated by the FDCA. See generally POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014). In POM Wonderful, the Supreme Court explained:

When two statutes complement each other, it would show disregard for the congressional design to hold that Congress nonetheless intended one federal statute to preclude the operation of the other” and that “[a]lthough both [the Lanham Act and the FDCA] touch on food and beverage labeling, the Lanham Act protects commercial interests against unfair competition while the FDCA protects public health and safety.

Id. at 115. Thus, even if there is overlap in the claims that Plaintiffs assert in the first cause of action and any hypothetical FDCA violations committed by Defendants, Plaintiff may nonetheless proceed in protecting its commercial interests under the Lanham Act.

         Defendants assert that Plaintiff fails to prove that claims made by Defendants are false or misleading, and at most, provides evidence that claims “lack substantiation” which “coopt[s] . . . the standard adopted by the Federal Trade Commission in [an attempt] to shoehorn a private right of action under the FTC and FDA Acts into a Lanham Act claim.” (Defs.' MSJ I, 3:25-27.) If Plaintiff is unable to establish a genuine issue of material fact as to whether Defendants made false or misleading claims, then the Court would agree that summary judgment would be appropriate, but only because ...


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