In re Outlaw Lab., LLP., Case No.: 3:18-CV-0840-GPC (consolidated with 3:18-CV-1882)

• Decision Date: 29 May 2020
• Docket Number: Case No.: 3:18-CV-0840-GPC (consolidated with 3:18-CV-1882)
• Citation: 463 F.Supp.3d 1068
• Parties: IN RE OUTLAW LABORATORY, LLP.
• Court: U.S. District Court — Southern District of California

463 F.Supp.3d 1068

IN RE OUTLAW LABORATORY, LLP.

Case No.: 3:18-CV-0840-GPC (consolidated with 3:18-CV-1882)

United States District Court, S.D. California.

Signed May 29, 2020

Matthew J. Smith, Robert Tauler, Tauler Smith LLP, Los Angeles, CA, Michael Ryan DuFour, DuFour Law, P.C., Playa Del Rey, CA, Sean Reagan, Pro Hac Vice, Leyh Payne & Mallia, PLLC, Houston, TX, for Outlaw Laboratory, LP.

Mark Poe, Samuel Song, Victor Meng, Randolph Gaw, Flora Vigo, Gaw | Poe LLP, San Francisco, CA, for Roma Mikha, Inc.

Mark Poe, Flora Vigo, Gaw | Poe LLP, San Francisco, CA, for Midway M3, Inc., Kalyana Inc., Big City Liquor, HH Eagles Market, Little Brown Jug Liquor, Blaze Smoke Shop, Midway Cigars & Smoke Shop, Point Loma Liquor, Inc., Sunset Mini Mart, Servall Market, Inc., Hillcrest Smoke Shop, Magic Market, Criscola's Liquor Store, F&F Food Bargain, Inc., Greene Cat Liquors, Bel Air Market, Cardiff Gas, Inc.

Flora Vigo, Gaw Poe LLP, San Francisco, CA, for EBM Jr. Market, Ideal Market.

David Allen Sergenian, Sergenian Ashby LLP, Los Angeles, CA, for Tauler Smith LLP.

ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS.

(ECF No. 168.)

Gonzalo P. Curiel, United States District Judge

This Order addresses the Defendants’ motion for judgment on the pleadings as to Plaintiff Outlaw Laboratory LLP's ("Outlaw") Complaint in Case No. 18-CV-1882. (See Case No. 18-CV-1882, ECF No. 1-2) (hereinafter, the "Complaint" or "Compl.")¹ The Court finds that Outlaw has failed to adequately plead a claim for which relief can be granted as to all three causes action and dismisses the Complaint with prejudice, except as to a claim arising under the "unfair" prong of California's Unfair Competition Law.

I. Background.

A. The Parties.

Plaintiff is a Texas-based manufacturer of two products called "TriSteel" and "TriSteel 8hour," which are male enhancement products made in the United States of America, distributed for sale in all 50 States, and which comply with the Dietary Supplement Health and Education Act of 1994. (Compl. at ¶ 4.) On July 25, 2018, Outlaw filed the Complaint in the Superior Court of California, County of San Diego. (Compl. at p. 48.) The Complaint was removed on August 12, 2018. (ECF No. 1.)

Originally, the Defendants consisted of fifty-one (51) convenience and liquor stores in the San Diego, California area. To date, twenty-three (23) of the Defendants have been terminated. See (Case No. 18-CV-1882, ECF Nos. 9, 11, 13, 2, 24, 27, 31); (Case No. 18-CV-0840, ECF Nos. 35, 36, 37, 40, 54, 57, 60, 88.)² Of the Defendants remaining, twenty (20) have filed Answers to the Complaint and are actively litigating this matter. (ECF Nos. 41, 43, 45, 47.)³ The other eight Defendants have neither filed appearances nor Answers to the Complaint, and seven of these eight Defendants have been in default since April 9, 2019.⁴ (ECF Nos. 71–79.)

B. Plaintiff Outlaw's Alleged Scheme.

Outlaw alleges that the Defendants engaged in a scheme to distribute and sell "male enhancement" pills containing undisclosed pharmaceuticals to the general public. (Compl. at ¶ 1.) Specifically, Defendants are alleged to sell various falsely advertised products, including Rhino 7 Platinum 5000, Rhino 12 Titanium 6000, Rhino 7 Platinum 3000, Rhino 8 Platinum 8000, Rhino 7 Blue 9000, Rhino 69 Platinum 9000, and Rhino 12 Titanium 6000 (collectively, the "Rhino Products"). (Compl. at ¶ 1.) According to laboratory testing and public announcements by the Federal Drug Administration ("FDA"), some of the Rhino Products contain hidden ingredients including sildenafil, the consumption of which can cause "life-threatening hypotension" and greatly "increase[s] the risk of heart attack," among other effects. (Compl. at ¶¶ 67–71, 77.)

To execute the scheme, the unnamed "Supplier Defendants," i.e., "wholesale suppliers and distributors of [the] sexual enhancement supplements," first "contract with importers of the Rhino Products" to bring in the products China. (Compl. at ¶¶ 72, 74.) Then, the Supplier Defendants distribute them to a "network of Retail Defendants." (Compl. at ¶ 72.) Finally, those "Retail Defendants," i.e., independent businesses in the San Diego area, "sell[ ] the Rhino Products, disseminate false claims about the Rhino Products, and profit from the sale of dangerous products to consumers at a large markup on each pill." (Compl. at ¶ 72.) The retail stores named as co-defendants in Case No. 18-cv-1882 are all alleged to be "Retail Defendants." (Compl. at ¶ 2.)

In the process of selling the Rhino Products, Defendants "advertise" and "make numerous false and misleading representations regarding the Rhino Products," including labeling the Rhino Products as "dietary supplements," as containing "no chemicals," as using an "all natural herbal formula," and as requiring "no prescription." (Compl. at ¶¶ 75–76.) Defendants "fail to disclose that the Rhino Products contain prescription drug ingredients" or any of the ingredients' "adverse health consequences." (Compl. at ¶ 78.) Thus, "Defendants’ false and misleading advertising" harms Outlaw by "creat[ing] an illegitimate marketplace" and diminishing consumers’ incentives "to use other sexual performance Rhino Products, such as TriSteel." (Compl. at ¶¶ 79–80.) The Complaint alleges that each of the Defendants "advertises and offers for sale" at least one of the Rhino Products. (Compl. at ¶¶ 81–131.)

C. Plaintiff Outlaw's Causes of Action.

Outlaw pleads three causes of action: (1) a violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 ; (2) a violation of California's False Advertising Law ("FAL"), Cal. Bus. & Prof. Code § 17500 ; and (3) a violation of the Lanham Act. 15 U.S.C. §§ 1051 et seq. All three causes of action rely on the same factual allegations asserted as to Defendants’ scheme, (Compl. at ¶¶ 67–131), and differ only marginally as pled in each cause of action. (Compl. at ¶¶ 132–160.)

As to the UCL violation, Outlaw pleads that Defendants have engaged in "unlawful conduct by selling pharmaceuticals without a prescription;" "unfair conduct because the use of pharmaceuticals in male Rhino Products provides them with a competitive advantage in the marketplace among consumers seeking effective products;" and "fraudulent conduct by way of their false, deceptive, and misleading marketing, advertising, and sale of the Rhino Products as detailed above." (Compl. at ¶ 134.) Defendants allegedly introduced false and misleading statements underlying these allegations "into California via marketing and advertising on various websites and shipment of its product containing false and misleading advertising into California." (Compl. at ¶ 138.) As a result, Outlaw "has suffered both an ascertainable economic loss of money and reputational injury by the diversion of business from Plaintiff to Defendants," and seeks "a preliminary injunction and a permanent injunction against further unlawful and unfair conduct by Defendants." (Compl. at ¶¶ 135, 139.)

As to the FAL violation, Outlaw claims that Defendants "make numerous false and misleading representations regarding the Rhino Products," including the labeling of Rhino Products as "dietary supplements," as containing "no chemicals," as using an "all natural herbal formula," and as requiring "no prescription." (Compl. at ¶¶ 142–43.) Defendants also allegedly "introduced their false and misleading statements into California via marketing and advertising on various websites and shipment of its product containing false and misleading advertising into California." (Compl. at ¶ 147.) In addition to the falsity of the statements, Defendants allegedly violate the FAL by "fail[ing] to disclose that the Rhino Products contain prescription drug ingredients, such as sildenafil." (Compl. at ¶ 144.) Defendants’ conduct and omissions allegedly "deceive a substantial segment of the public and consumers in California into believing that they are purchasing a product with different characteristics." (Compl. at ¶ 145.) As a result, Outlaw "has suffered both an ascertainable economic loss of money and reputational injury by the diversion of business from Plaintiff to Defendants," (Compl. at ¶¶ 148), and seeks "preliminary and permanent injunctive relief enjoining Defendants from producing, licensing, marketing, and the Rhino Products." (Compl., Prayer for Relief, at ¶ 1.)

As to the Lanham Act violation, Plaintiff alleges that Defendants "make numerous false and misleading representations regarding the Rhino Products." (Compl. at ¶ 152.) Defendants also "fail to disclose that" the Rhino Products "unlawfully contain hidden drug ingredients, such as sildenafil" – a fact the Stores "knew, or should have known." (Compl. at ¶¶ 153–55.) Defendants thus "have knowingly and materially participated in a false and misleading advertising campaign ..." (Compl at ¶ 155.) Defendants’ deceptive statements are "likely to influence a consumer's purchasing decisions" and have been introduced "into interstate commerce via marketing and advertising at trade shows, on various websites and shipment of their products containing false and misleading advertising into interstate commerce." (Compl. at ¶¶ 157–58.) As a result, the Stores’ misconduct has "resulted in the diversion of sales from Plaintiff and lost profits," for which Plaintiff now seeks multiple forms of damages, restitution, and injunctive relief. (See Compl. at ¶ 159; Compl., Prayer for Relief.)

D. Procedural Background.⁵

On January 27, 2020, eighteen of the Defendant Stores (hereinafter, the "Stores")⁶ moved for judgement on the pleadings. (ECF No. 168.) On February 24, 2020, Plaintiff filed a response. (ECF No. 175.) On February 27, 2020, the Stores filed a reply. (ECF No. 176.) The Court took the matter on submission on April 16, 2020.

II. Legal Standard for Judgment on the Pleadings.

"Rule 12(c) is functionally identical to Rule 12(b)(6) and ... the same standard of review applies to motions brought under either rule." United States ex...