Chaverri v. Platinum Led Lights LLC

• Decision Date: 22 June 2022
• Docket Number: CV-21-01700-PHX-SPL
• Parties: Scott Chaverri, et al., Plaintiffs, v. Platinum LED Lights LLC, et al., Defendants.
• Court: U.S. District Court — District of Arizona

Scott Chaverri, et al., Plaintiffs,
v.
Platinum LED Lights LLC, et al., Defendants.

No. CV-21-01700-PHX-SPL

United States District Court, D. Arizona

June 22, 2022

ORDER

Honorable Steven P. Logan United States District Judge

Before the Court is Plaintiffs' Motion to Dismiss Defendants' First Amended Counterclaim for Failure to State a Claim. (Doc. 47). The Motion will be granted in part and denied in part as follows.

I. BACKGROUND

Plaintiff Scott Chaverri is the founder and CEO of Plaintiff Mito Red Light, Inc. (“Mito Red”), a red-light therapy company based in Scottsdale, Arizona that sells its products exclusively via the internet. (Doc. 19 at 1-4). Defendant Mark Sawyer is the CEO, manager, and principal agent of Defendant Platinum LED Lights LLC (“Platinum”), collectively referred to as the “Platinum Defendants,” which is a red-light therapy company based in Lake Mary, Florida and a direct competitor of Mito Red. (Doc. 19 at 2-4). Defendant Michael Volkin is the CEO and principal agent of Defendant Volkinator Enterprises, Inc. (“Volkinator”), collectively referred to as the “Volkin Defendants,” which provides marketing services. (Doc. 19 at 2, 6).

Around March 2020, Mito Red began advertising on its website that unlike its

1

competitors, which used two- or three-watt bulbs in their devices, Mito Red's red-light therapy device used five-watt LED lightbulbs (hereafter referred to as “the five-watt statement”). (Doc. 46 at 4). Mito Red further claimed that because of the five-watt bulbs, its product offered greater power and higher irradiance than competing brands. (Doc. 46 at 4-5). Defendants allege that from 2020 through 2021, Platinum's customer service representatives “found that Mito Red's 5-watt claims were having a significant impact with consumers,” as they received “many” calls asking about the five-watt statement and “it was evident that Platinum was losing sales to Mito Red as a result.” (Doc. 46 at 6).

Platinum then hired Volkinator to investigate Mito Red's claims about the wattage and irradiance of their product. Michael Volkin allegedly found that Mito Red used three-watt bulbs, not five-watt bulbs as claimed, and that the resultant irradiance of the product was two-thirds less than Mito Red had advertised. (Doc. 46. at 6-7). In October 2020, Platinum published a blog post entitled “MYTH BUSTED: SETTLING THE 3-WATT VS 5-WATT LED DEBATE” to counter Mito Red's five-watt statement. (Doc. 46 at 7).

In response to the blog post and other alleged acts of defamation and false advertising, Plaintiffs initiated an action in Maricopa County Superior Court, which was removed to this Court on October 5, 2021. (Doc. 1). On November 1, 2021, Plaintiffs filed their Second Amended Complaint alleging six counts: (1) false advertising and unfair competition under the Lanham Act, (2) defamation and defamation per se, (3) false light invasion of privacy, (4) tortious interference with current and prospective business relationships, (5) aiding and abetting, and (6) conspiracy. (Doc. 19). On December 2, 2021, Defendants filed a Motion to Dismiss for Failure to State a Claim. (Doc. 29). The Defendants' Motion to Dismiss was granted in part and denied in part on January 24, 2022. (Doc. 37). On February 8, 2022, Defendants answered the Plaintiffs' Second Amended Complaint, asserting various defenses and counterclaims. (Doc. 39).

On March 17, 2022, Defendants filed their First Amended Counterclaim (“FAC”) alleging four counts: (1) false advertising and unfair competition under the Lanham Act, (2) Racketeering Influenced and Corrupt Organizations Act (“RICO”) violations,

2

(3) deceptive trade practices under Florida's Deceptive and Unfair Trade Practices Act (“FDUTPA”), and (4) abuse of process. (Doc. 46). On March 30, 2022, Plaintiffs filed a Motion to Dismiss for Failure to State a Claim. (Doc. 47). Defendants responded in opposition to the motion on April 14, 2022 (Doc. 48), and Plaintiffs replied on April 21, 2022 (Doc. 52). The issues raised in the Motion to Dismiss will now be addressed in turn.

II. LEGAL STANDARD

a. Rule 12(b)(6), Federal Rules of Civil Procedure

To survive a Fed.R.Civ.P. 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it contains “factual content that allows the court to draw the reasonable inference” that the moving party is liable. Id. Factual allegations in the complaint should be assumed true, and a court should then “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. Facts should be viewed “in the light most favorable to the non-moving party.” Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013).

b. Rule 9(b), Federal Rules of Civil Procedure

Under Fed.R.Civ.P. 9(b), “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Such allegations must be “specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Plaintiffs contend that Defendants' Lanham Act, RICO, and FDUTPA claims are subject to the heightened 9(b) pleading standard because the claims are grounded in fraud. (Doc. 47 at 3-5).

Even where fraud is not a required element of a claim, if a plaintiff alleges “a unified course of fraudulent conduct” by the defendant, and then relies “entirely on that course of conduct as the basis of a claim,” then the claim is considered “‘grounded in fraud' or to

3

‘sound in fraud,' and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003). However, where a plaintiff alleges both fraudulent and non-fraudulent conduct in the complaint, and fraud is not an essential element of a claim, “only allegations (‘averments') of fraudulent conduct must satisfy the heightened pleading requirements of Rule 9(b).” Id. at 1105. Such averments of fraud “must be accompanied by ‘the who, what, when, where, and how of the misconduct charged.'” Id. at 1106 (citing Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). Additionally, like dismissals under Rule 12(b)(6), “dismissals for failure to comply with Rule 9(b) should ordinarily be without prejudice,” giving the party leave to amend. Vess, 317 F.3d at 1108.

III. DISCUSSION

Platinum argues that Plaintiffs have failed to state a claim for violations of the Lanham Act, RICO, FDUTPA, or for abuse of process. The Court will address the claims in turn.

a. False Advertising and Unfair Competition under the Lanham Act

The Lanham Act, 15 U.S.C. § 1125(a), “authorizes suit by ‘any person who believes that he or she is likely to be damaged' by a defendant's false advertising.” Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 129 (2014) (quoting 15 U.S.C. § 1125(a)(1)).

The elements for a false advertising claim under the Lanham Act are:

(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 . . . .

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997).

4

i. Whether Defendants' Lanham Act Allegations Are Subject to Rule 9(b)

The Ninth Circuit has not definitively ruled on whether Rule 9(b) applies to Lanham Act claims. Clorox Co. v. Reckitt Benckiser Grp. PLC, 398 F.Supp.3d 623, 634 (N.D. Cal. 2019). Most district court authority in the Ninth Circuit has held that the 9(b) standard does apply to false advertising claims, which therefore “requires the plaintiff to plead the ‘time, place, and specific content of the false representations,' the identities of the parties to the misrepresentation, and what about the statement is claimed to be misleading.” Epicor Software Corp. v. Alternative Tech. Sols., Inc., No. SACV 13-00448-CJC, 2013 WL 2382262, at *4 (C.D. Cal. May 9, 2013) (internal citation omitted); see also World Nutrition Inc. v. Advanced Enzymes USA, No. CV-19-00265-PHX-GMS, 2019 WL 5802001 (D. Ariz. Nov. 7, 2019); Bobbleheads.com, LLC v. Wright Bros., Inc., 259 F.Supp.3d 1087 (S.D. Cal. 2017); Seoul Laser Dieboard Sys. Co. v. Serviform, S.r.l., 957 F.Supp.2d 1189 (S.D. Cal. 2013).

Defendants' false advertisement allegations expressly allege that “Mito Red's conduct was undertaken willfully and with the intention of causing confusion, mistake or deception.” (Doc. 46 at 11). Notably, Defendants' Response provides no argument as to why the Court should not adopt the heightened 9(b) pleading standard for their Lanham Act claims; indeed, they fail to address Plaintiffs' Rule 9(b) argument at all. Because Defendants' false advertising claim is grounded in a “knowing and intentional misrepresentation,” Rule 9(b)'s heightened pleading requirement applies to this Lanham Act claim. 23And Me, Inc. v. Ancestry.com DNA, LLC, 356 F.Supp.3d 889, 908 (N.D. Cal. 2018), aff'dper curiam, 778 Fed.Appx. 966 (Fed. Cir. 2019).

ii. Whether Defendants' Lanham Act Allegations Are Adequately Pled

1. False Statement of Fact

Defendants' FAC divides the false advertising claim into three components, alleging that Mito Red engaged in false advertising by:

...