In re Outlaw Laboratory, LP Litigation

          ORDER GRANTING MOTION FOR SUMMARY JUDGMENT ECF NO. 90.

          Hon. Gonzalo P. Curiel United States District Judge

         Defendants Eashou, Inc. (dba San Diego Cash & Carry), Fountain Trading Corp., Kachi Enterprises Inc., Main Calif, Inc., R&M Palm, Inc., and Zaya Enterprises Inc. (“Defendants”) - five independent convenience and liquor stores in the San Diego area as well as one local wholesaler - move the Court for summary judgment on Plaintiff Outlaw Laboratory, LP's (“Plaintiff”) claim of false advertising under the Lanham Act, 15 U.S.C. § 1051 et seq. Plaintiff has alleged that Defendants are engaged in a scheme to sell sexual enhancement pills, which contain hidden prescription drugs, and which Defendants market as “all natural, ” among other false advertisements. Defendants reject this claim on the reasoning that the undisputed facts do not show they have contributed to any false advertising, and thus cannot be held liable for lawfully re-selling a third party's products.

         This case thus presents the following question for the Court: can a local retail or wholesale store that sells another company's product, without independently advertising that product, be held liable under Lanham Act for any false statements on the product's packaging? The Court finds that it cannot. Consequently, based on the undisputed facts of this case, the Court finds that no reasonable juror could find Defendants liable under the Lanham Act and directs summary judgment as to the Lanham Act claim in DG in PB.

         I. Factual and Procedural Background^[1]

         a. The Parties.

         Plaintiff is a Texas-based manufacturer of male-enhancement products called “TriSteel” and “TriSteel 8 hour.” (ECF No. 1, Complaint at ¶ 4.)^[2] Plaintiff's products are made in the United States, distributed for sale in all 50 states, and comply with the Dietary Supplement Health and Education Act. (Id.) Plaintiff's products are not sold in any retail stores in California. (ECF No. 90-7, Requests for admission (“RFA”) Nos. 1- 5). Instead, Plaintiff only sells its products at www.outlawlaboratory.com. (ECF No. 90-7, RFA No. 6.)^[3] Plaintiff formed in Texas in September 2016, has two employees, and is co-owned by two individuals - Michael Wear and Shawn Lynch. (ECF No. 133-2, Responses to Interrogatories (“RTI”) Nos. 1, 3; ECF No. 90-6, Requests for Production (“RFP”) No. 11; ECF No. 114 at ¶¶ 2, 16, 17, 65.)

         The Defendants in this case are proprietors of gas stations, liquor stores, and corner stores. (ECF No. 114 at ¶¶ 26-27.) Defendants sell male-enhancement pills, i.e. “the Enhancement Products.”^[4] (ECF No. 1, Complaint at ¶ 1; ECF No. 94-7, Decl. of Michael Wear at ¶¶ 2-6; ECF Nos. 94-8 (Kachi Enterprises Inc.), 94-9 (Main Calif, Inc.), 94-10 (R&M Palm, Inc.), 94-11 (Zaya Enterprise, Inc.), 94-12 (Foundation Trading Corp.)). As of July 2019, Defendants continue to sell Enhancement Products, (ECF No. 94-1, Decl. of Ruhl at ¶¶ 4-8), ^[5] which are displayed on racks “at or near the checkout counter” without the use of additional, in-store advertisements. (ECF No. 1, Complaint at ¶ 33; ECF Nos. 94-2 at 3 (Kachi Enterprises Inc.), 94-4 at 3 (R&M Palm, Inc.), 94-5 at 2 (Zaya Enterprise, Inc.).)

         The Food and Drug Administration has issued multiple notices warning that some of the Enhancement Products contain hidden drugs, including sildenafil (a prescription drug found in Viagra), desmethyl carbodenafil (an analogue of sildenafil), dapoxetine (an anti-depressant drug), and tadalafil (a prescription drug found in Cialis). (ECF No. 90-21 at 13-20, 42-53, 80-87, 110-21, 147-54). Plaintiff has provided independent testing that shows at least five such products - Blue Fusion, Premier Zen Platinum 5000, King Kung 8000, Black Stallion 9000, and Rhino 25 Titanium 8000 - contain the hidden prescription drugs. (ECF No. 94-13.)

         Plaintiff has supplied no evidence to suggest that Defendants had “any role in formulating the challenged products or had any role in drafting the language on their packaging.” (ECF No. 90-6, RFP Nos. 23-77; ECF Nos. 90-20, 90-21.) When asked for all facts supporting the allegation that Defendants advertise the Enhancement Products, Plaintiff relied only on some sales receipts from San Diego Cash & Carry to two stores not named as defendants - S&N Market and Spotts Liquor. (ECF No. 1, Complaint at ¶ 33; ECF No. 133-2, RTI No. 17; ECF No. 90-20, Receipts.)

         b. Plaintiff's Letters to Defendants

         Since December 2017, Plaintiff has mailed demand letters to proprietors of stores that sell Enhancement Products. (ECF No. 114 at ¶¶ 26-27.) Outlaw's demand letters warned recipients that they were “selling illegal sexual enhancement drugs, ” which “subject your company to legal action for racketeering . . . under RICO (Racketeer Influenced Corrupt Organizations) and the Federal Lanham Act” and obligate the recipients to pay to Outlaw “profits from the sale of Illicit Products dating back four years, ” “Attorney's fees, ” “Punitive damages, ” and “Triple damages.” (ECF No. 90-21 at 3; ECF No. 90-21 at 1-168 (containing letters and attachments sent to five of six Defendants.)) The letters estimated the recipients' liabilities at “over $100, 000” but stated that Outlaw would “settle all claims in exchange for a one-time settlement agreement of [$9, 765, in the sample demand letter] and your agreement to stop selling the Illicit Products.” (Id. at 4).

         The letters conclude by warning that, “[i]f this matter is not fully resolved before [a date typically within 30 days], ” a lawsuit will be filed against the recipient. (Id.) Attached to the letters are typically three exhibits: (1) “photographs taken at [Defendants' stores] capturing [the] sale of the Illicit Products, ” (2) “notices from the Food and Drug Administration regarding the illegality of the Illicit Products, ” and (3) a draft complaint with the recipient's name filled in as defendant. (See, e.g., id. at 2-34).

         Some recipients, like Skyline Market, Inc., acquiesced to the demand letter and settled with Outlaw. (ECF No. 114 at ¶ 35). Others, like NMRM, Inc. and Roma Mikha, Inc., did not settle but removed the products from their shelves. (Id. at ¶ 33-34).

         c. Plaintiff Initiated Two Lawsuits, which the Court then Consolidated.

         On May 2, 2018, Outlaw filed a complaint in the Southern District of California against eleven defendants, all of whom had received a demand letter, and 100 Does. See ECF No. 1 at ¶¶ 2, 15-26, Outlaw Laboratory, LP v. DG in PB, LLC et al (hereinafter, the “DG in PB” action), Case No. 18-CV-0840-GPC (S.D. Cal. 2018). Plaintiff alleges that the defendants sold the Enhancement Products and that the packaging contained false advertisements, including that the products are “all natural, ” contain “no harmful synthetic chemicals, ” “no prescription necessary, ” and have limited side effects. (Id. at ¶¶ 3, 32-33). In this action, Plaintiff has pled one claim for false advertising in violation of § 43(a)(1)(B) of the Lanham Act. (Id. at ¶¶ 49-55).

         On July 24, 2018, Outlaw filed a second complaint in San Diego Superior Court against fifty-one defendants, all of whom had received a demand letter, and 100 Does. See ECF No. 1-2 at 13, Outlet Laboratory, LP v. San Diego Outlet, Inc. (hereinafter, the “San Diego Outlet” action), Case No. 18-CV-1882-GPC (S.D. Cal. 2018). Like the DG in PB Complaint, the San Diego Outlet complaint alleges that the defendants engaged in a scheme to sell unlawful “Rhino products, ”^[6] which contain hidden prescription drugs. (Id. at ¶¶ 1-3). As with the Enhancement Products, Outlaw claims that, by selling the Rhino products at their stores, the defendants disseminate false statements including that the products are “all natural, ” contain “no harmful synthetic chemicals, ” “no prescription necessary, ” and have limited side effects. (Id. at ¶ 57.) In the San Diego Outlet complaint, Plaintiff pleads three causes of action: (1) a violation of California Business and Profession Code § 17200 (prohibiting unlawful, unfair, or fraudulent business acts); (2) a violation of the California False ...