Grasshopper House, LLC v. Clean & Sober Media LLC

• Decision Date: 01 July 2019
• Docket Number: Case No.: 2:18-cv-00923-SVW-RAO
• Citation: 394 F.Supp.3d 1073
• Court: U.S. District Court — Central District of California
• Parties: GRASSHOPPER HOUSE, LLC Plaintiff, v. CLEAN & SOBER MEDIA LLC, et al., Defendants. Cliffside Malibu, et al. Counterclaim Plaintiffs, v. Grasshopper House, LLC, et al., Counterclaim Defendants.

394 F.Supp.3d 1073

GRASSHOPPER HOUSE, LLC Plaintiff,

v.CLEAN & SOBER MEDIA LLC, et al., Defendants.

Cliffside Malibu, et al. Counterclaim Plaintiffs,

v.Grasshopper House, LLC, et al., Counterclaim Defendants.

Case No.: 2:18-cv-00923-SVW-RAO

United States District Court, C.D. California.

Signed July 1, 2019

Jason Levin, Bennett Evan Cooper, Jennifer L. Morrow, Melanie Atswei Ayerh, Steptoe and Johnson LLP, Los Angeles, CA, Laura J. Edelstein, Steptoe and Johnson LLP, San Francisco, CA, Libretta P. Stennes, Pro Hac Vice, William R. Andrichik, Pro Hac Vice, Steptoe and Johnson LLP, Chicago, IL, for Plaintiff/Counterclaim Defendants.

Brendan Stephen Maher, Dana Erin Berkowitz, Elizabeth Rogers Brannen, Peter K. Stris, Kenneth J. Halpern, Steven Barnett Stiglitz, Victor A. O'Connell, Stris and Maher LLP, Los Angeles, CA, Shaun P. Martin, University of San Diego Law School, San Diego, CA, for Defendants/Counterclaim Plaintiffs.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND JUDGMENT

STEPHEN V. WILSON, UNITED STATES DISTRICT JUDGE

I. Introduction

On February 19, 2019, the Court held a jury trial in this action, in which the jury rendered a verdict finding in favor of Plaintiff Grasshopper House, LLC on its claims under the Lanham Act, 15 U.S.C. § 1125(a). The jury also found in favor of Counterclaim Defendants Grasshopper House, LLC, Passages Silver Strand, LLC, Chris Prentiss, and Pax Prentiss (collectively or individually, "Passages") on the Lanham Act counterclaim advanced by Defendants and/or Counterclaim Plaintiffs Cliffside Malibu, Clean & Sober Media LLC, Richard Taite, Sunset Malibu, Cliffside Malibu II, Cliffside Malibu Outpatient Services, Cliffside Malibu 3, and Recovery Malibu (collectively or individually, "Cliffside") regarding Passages' advertisements representing the existence of a "cure" for addiction. See Dkt. 352.

Following the jury trial, the Court held a bench trial on February 26, 2019 to determine issues of equitable relief, including injunctive relief and equitable monetary relief. In advance of the bench trial, the parties submitted trial declarations containing their witnesses' direct testimony, as required by the Court's Standing Order for non-jury trials. During the bench trial, the Court heard evidence and testimony from the parties and witnesses, and in lieu of hearing oral closing arguments from the parties, the Court requested that the parties submit trial briefs addressing the legal issues for the Court to resolve as part of the bench trial.

Having carefully reviewed and considered the evidence presented at the bench trial and the parties' trial briefs, the Court issues the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a) regarding outstanding equitable issues.

II. Findings of Fact

For all findings of fact set forth below, in making any credibility determinations regarding witness testimony, the Court has considered, among other things, the manner in which the witnesses testified, their interest in the outcome of the case, and the reasonableness of their testimony in light of all of the evidence. The Court has also considered the relevant factors in Section 1.14 of the Manual of Model Civil Jury Instructions for the District Courts of the Ninth Circuit (2017 Edition), located at http://www3.ce9.uscourts.gov/jury-instructions/sites/default/files/WPD/Civil_Instructions_2018_9_0.pdf.

A. Cliffside's Acquisition of The Fix

In October 2013, Richard Taite, the former CEO of Cliffside Malibu, created the entity Clean & Sober Media LLC ("C&S Media"), which purchased The Fix at a bankruptcy auction. 2/20 AM Tr. at 12-13, 15.¹ The slogan for The Fix, appearing just below the title of the website, was "addiction and recovery, straight up." See, e.g. , Trial Ex. 2452.² Following acquisition by C&S Media, The Fix published two separate statements on its website to describe the process for writing reviews of treatment centers and to provide the overarching goals of The Fix's website.

The first statement, which the Court will refer to as the "Mission Statement," was published on November 17, 2013 and stated the following:

The Fix is the world's leading website about addiction and recovery, featuring a daily mix of breaking news, exclusive interviews, investigative reports, essays and blogs on sober living, lifestyle and cultural resources, as well as knowledge and wisdom from expert counsel. We also offer rigorously reported Rehab Reviews, with input from thousands of alumni, plus extensive directories and practical guides for dealing with addiction and related mental health and life issues. Further, The Fix provides an extensive forum for debating relevant issues, allowing a large community the opportunity to express its experiences and opinions on all matters pertinent to addiction and recovery without bias or control from The Fix. Our stated editorial mission – and sole bias – is to destigmatize all forms of addiction and mental health matters, support recovery, and assist toward humane policies and resources.

Trial Ex. 1874. The second statement, hereafter referred to as the "Process Statement," was published on October 1, 2014 and proclaimed:

To create our reviews, we invite selected centers to solicit former clients to complete a detailed, 20-question survey. The Fix requires at least five completed surveys before a review is generated. The surveys include questions about accommodations, meals, residents, staff, activities, and more. Alumni respond anonymously and confidentially, and reviews are written based on their responses and follow-up questions where applicable.

Trial Ex. 214.

Jay Levin, the editor-in-chief of The Fix at the time these statements were published, developed the Process Statement and the Mission Statement in collaboration with the editorial staff at The Fix, including Allison McCabe, but without any input from Taite or anyone from Cliffside. See 2/26 AM Tr. at 57-59; 2/19 PM Tr. at 107.

B. The Passages Review

At the time C&S Media acquired The Fix, there was a pre-existing review of Passages Malibu, an addiction treatment center owned by Passages, written by the previous editorial staff of The Fix in 2011. See Trial Exs. 2451, 2452. The review page for the Passages Malibu facility included the tag line "THE REHAB REVIEW: The Inside Scoop From Hundreds of Former Clients." Trial Exs. 2451, 2452. The Passages review included alleged quotes from former clients of Passages' treatment, describing the sources of the quotes as an "alum," "former resident," or "former client." Trial Ex. 2451. The review rated Passages 5 out of 5 stars for accommodations and food, but 1 out of 5 stars for treatment, culminating in an overall rating of 1 out of 5 stars. Id. By June 4, 2011, Passages' overall star rating had been increased to 2 stars. Trial Ex. 2452.

The Fix continued to maintain the Passages review on its website after being acquired by C&S Media. Around September 2014, The Fix introduced a new rating system for its Rehab Reviews that allowed for more precise half-star ratings, so The Fix made adjustments to the ratings of many of the treatment centers. See Trial Ex. 1764. By December 2014, Passages Malibu's overall star rating had increased from 2 to 2.5 stars. See Trial Exs. 1033, 2454. After a reformatting of The Fix's website, The Fix also began to display banner ads for Cliffside Malibu at the top of the Passages review page and displayed links to the corresponding Rehab Review page for Cliffside Malibu. See Trial Exs. 2454, 2455.

Pax Prentiss, the CEO of Passages, stated that a search for "Passages Malibu" on Google would display a link to The Fix's review of Passages just below the link to the Passages website on the first page of the search results. Dkt. 371 ¶ 11. Internal Cliffside emails revealed that Cliffside urged prospective clients to read the Passages review before making a decision as to whether to enroll with Passages or Cliffside, and some of these clients made the decision to sign up with Cliffside Malibu after reading the Passages review. See Trial Exs. 301, 306, 406. In one email responding to an inquiry from a prospective client seeking addiction treatment, Taite gave the following suggestion: "I would do my due diligence and simply type in passages Malibu reviews into your Google bar and do the same with us and see how others view us both so that you are comfortable." Trial Ex. 305. Cliffside characterized other clients it received as "stolen" from Passages, including one who had believed she was calling Passages Malibu but instead had called the number for Cliffside Malibu. See Trial Ex. 407.

C. Cliffside's Concealment of Ownership of The Fix

Although Taite acquired The Fix through C&S Media, Taite did not want to publicize the connection between The Fix and Cliffside.

Emails from November 2013 between Jay Levin, the editor-in-chief of The Fix at the time of the acquisition by C&S Media, and McCabe, in her previous role as an editor of The Fix, reveal that The Fix had full knowledge that Taite's wife, Delphene Robertson, was the official owner and CEO of C&S Media. Trial Ex. 288. Levin acknowledged that Taite "does not want to be publicly associated with The Fix and there are good business reasons for this," and Levin requested that McCabe, who had a pre-existing personal relationship with Taite, be "discrete" in what information McCabe shares about Taite with the editorial staff. Id. In February 2014, in order to keep Taite's ownership of The Fix through Robertson and C&S Media confidential, Levin instructed an editor at The Fix to respond to an inquiry from a different addiction treatment center about the owner of The Fix by saying that The Fix "is owned by a private individual who does not own a treatment center." Ex. 290. By 2016, Taite became the sole owner of C&S Media by acquiring the company from Robertson. See 2/20 AM Tr. at 13.

Levin, who had been hired by Taite as the editor-in-chief of The Fix shortly after the acquisition...