Ariix, LLC v. Nutrisearch Corporation

• Court: District Court, S.D. California
• Decided: April 13, 2023
• Docket: 3:17-cv-00320
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 ARIIX, LLC, Case No.: 17CV320-LAB (DDL)

12 Plaintiff, ORDER RE: REMAND 13 v. 14 NUTRISEARCH CORPORATION, et al., 15 Defendant. 16

17 Plaintiff Ariix, LLC (“Ariix”), a nutritional supplement company, brings this suit 18 under the Lanham Act based on a theory of false advertising. Ariix alleges that 19 Defendants NutriSearch Corporation (“NutriSearch”), the publisher of the 20 NutriSearch Comparative Guide to Nutritional Supplements (“Guide”), and Lyle 21 MacWilliam, the Guide’s author (together with NutriSearch, “Defendants”), were 22 directly funded by Ariix’s competitor, USANA Health Sciences, Inc. (“Usana”), so 23 that Usana could achieve the Guide’s number-one rating for nutritional 24 supplements. This Court originally dismissed Ariix’s false advertising claim, but in 25 a two-one decision, the Ninth Circuit reversed, finding that Ariix had “plausibly 26 alleged that the defendant’s publication was commercial speech, was sufficiently 27 disseminated, and contained actionable statements of fact.” (Dkt. 41 at 2). The 28 appellate panel remanded the case to this Court to decide the third element of a 1 Lanham Act claim—whether the defendant’s publication was for the purpose of 2 influencing consumers to buy the defendant’s goods or services. Having 3 considered the parties’ briefings on this issue, the Court finds as follows. 4 I. BACKGROUND 5 On February 16, 2017, Ariix commenced this suit against Defendants,1 6 bringing a false advertising or promotion claim under the Lanham Act, 15 U.S.C. 7 § 1125(g). (Dkt. 1). Following its initial dismissal of Ariix’s original Complaint, the 8 Court again dismissed Ariix’s First Amended Complaint (“FAC”), finding that Ariix 9 failed to plead facts showing that a consumer review publication like the Guide 10 meets the definition of “commercial advertising or promotion” under the Lanham 11 Act. (Dkt. 27). Specifically, the Court held that consumer product reviews fall 12 outside the scope of § 1125(a)(1)(B) because they are not commercial speech and 13 instead are statements of opinion. The Court also found that Ariix had failed to 14 plausibly allege that Defendants had made false statements about Usana’s or 15 Ariix’s products. 16 On Ariix’s appeal, the Ninth Circuit narrowly considered whether Ariix had 17 plausibly alleged that NutriSearch had engaged in “commercial speech” in its 18 publication of the Guide. (Dkt. 41); Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107, 19 1115 (9th Cir. 2021). In distinguishing commercial and non-commercial speech, 20 the Ninth Circuit looked to the three Bolger factors: whether (1) “the speech is an 21 advertisement,” (2) it “refers to a particular product,” and (3) “the speaker has 22 economic motivation.” Id. at 1115–16 (quoting Hunt v. City of Los Angeles, 638 23 F.3d 703, 715 (9th Cir. 2011)); see also Bolger v. Youngs Drug Prods. Corp., 463 24 25 26 1 Ariix initially filed this suit against NutriSearch, MacWilliam, and Usana, but 27 on March 21, 2022, the Court dismissed Usana from this action for lack of personal jurisdiction. (Dkt. 67). On April 1, 2022, Ariix notified the Court of its intent not to 28 1 U.S. 60, 66–67 (1983). The court’s analysis turned primarily on the third factor, 2 which “asks whether the speaker acted primarily out of economic motivation, not 3 simply whether the speaker had any economic motivation.” Id. at 1116 (emphasis 4 in original). The panel majority found that the Guide “is more like a sophisticated 5 marketing sham rather than a product review guide,” thereby rendering it “paid 6 promotion” free from the protections enjoyed under the First Amendment. Id. at 7 1118–19 (“Simply put, paid promotion is commercial speech.”). The panel majority 8 concluded that where, as here, it’s alleged that a publisher claiming to offer 9 independent product reviews has secretly rigged the ratings to favor one company 10 over another in exchange for financial compensation, such speech can be 11 considered commercial. The majority also ruled that Defendants were not shielded 12 by the First Amendment and that Ariix had “plausibly alleged that the defendant’s 13 publication was commercial speech, was sufficiently disseminated, and contained 14 actionable statements of fact.” (Id. at 2). 15 The panel majority left it to this Court to decide, on remand, whether 16 Defendants’ publication was made “for the purpose of influencing consumers to 17 buy defendant’s goods or services.” Coastal Abstract Serv., Inc. v. First Am. Title 18 Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999). The Court now looks to Ariix’s Second 19 Amended Complaint (“SAC”) and considers this issue in the first instance.2 20 21 2 Ariix filed a Notice of Supplemental Authority of a related case filed by Ariix 22 against Usana in the District of Utah for allegations mirroring those in the present 23 case. (See Dkt. 72); Ariix LLC v. Usana Health Scis., Inc., No. 2:22-cv-00313-JNP- DAO (D. Utah). Specifically, Ariix brings to the Court’s attention that court’s 24 Decision and Order Denying Defendant’s Motion to Dismiss, including Judge Jill 25 Parrish’s interpretation of the Ninth Circuit’s Mandate regarding whether Ariix had plausibly alleged the existence of an agency relationship between Usana, 26 NutriSearch, and MacWilliam. Although the Court is not bound by the Utah court’s 27 reasoning, pursuant to Federal Rule of Evidence 201, the Court nevertheless takes judicial notice on its own of the Utah court’s decision. United States ex rel. 28 1 II. ANALYSIS 2 To establish a false advertising claim under the Lanham Act, a plaintiff must 3 allege “a false or misleading representation of fact in commercial advertising or 4 promotion that misrepresents the nature, characteristics, qualities, or geographic 5 origin of his or her or another person’s goods, services, or commercial activities.” 6 Prager Univ. v. Google LLC, 951 F.3d 991, 999 (9th Cir. 2020) (internal citations 7 and quotation marks omitted). The Ninth Circuit defines “commercial advertising 8 or promotion” as “(1) commercial speech, (2) by a defendant who is in commercial 9 competition with plaintiff, (3) for the purpose of influencing consumers to buy 10 defendant’s goods or services, and (4) that is sufficiently disseminated to the 11 relevant purchasing public.” Ariix, 985 F.3d at 1115; see also Newcal Indus., Inc. 12 v. Ikon Office Sol., 513 F.3d 1038, 1054 (9th Cir. 2008). 13 This Court must decide whether there is evidence to support a plausible 14 claim as to the third element of a false advertising claim—that is, whether Ariix has 15 plausibly alleged that publication of the Guide was intended to influence 16 consumers to buy NutriSearch’s product. While the Ninth Circuit didn’t decide this 17 issue on appeal, the panel majority did note that the allegations in the complaint 18 suggest that the advertising was “intended to help Usana’s goods, not 19 NutriSearch’s product,” Ariix, 985 F.3d at 1120, and that in analyzing this element, 20 it may be helpful for this Court “to determine whether the defendants and Usana 21 had an agency relationship; for example, it might be the case that the defendants 22 were acting as agents of Usana and therefore had a vested interest in the goods 23 that Usana sold, which might be enough to satisfy this element,” id. at 1120 n.10. 24 Judge Collins likewise noted in his dissent that the third element may be satisfied 25

26 27 1992) (holding that a court may take judicial notice of “proceedings in other courts, both within and without the federal judicial system, if those proceedings have a 28 1 with allegations suggesting that “Defendants . . . acted on Usana’s behalf or at its 2 direction by secretly making, in exchange for compensation, specific changes 3 requested by Usana in its own or competitors’ product reviews in the Guide.” Id. at 4 1126. He concluded, however, that the complaint falls short of alleging a true 5 agency relationship between Defendants and Usana: 6 That Defendants wrote obsequious reviews in the hope 7 that Usana would be pleased and buy more Guides or give 8 MacWilliam speaking engagements does not make them Usana’s agents in writing those reviews. Nor does it 9 establish that they acted on Usana’s behalf or subject to its 10 control in doing so. 11 Id. at 1127. Instead, he opined that “the complaint’s factual allegations establish, 12 at most, that Defendants produced biased reviews in the craven hope that Usana 13 would then act in ways that were economically favorable to Defendants.” Id. at 14 1126. 15 Ariix takes umbrage with the dissent’s conclusion, arguing that, “[w]hether 16 assessed as a hidden financial arrangement, an agency relationship, or a 17 conspiracy, MacWilliam and NutriSearch had a vested interest in the sale of 18 Usana’s goods sufficient to attribute Usana’s goods to them.” (Dkt. 45 at 6). The 19 Court agrees. 20 A. Ariix’s Allegations 21 Ariix alleges in its complaint that Defendants are closely associated with 22 Usana and that “Usana pays NutriSearch and MacWilliam hundreds of thousands 23 of dollars per year and provides substantial other benefits—such as book sales to 24 Usana representatives—which altogether account for more than 90% of 25 MacWilliam’s income.” (Dkt. 44, SAC at 1–2). In return, Ariix claims, “Usana 26 exercises ultimate control over MacWilliam and NutriSearch’s product,” namely by 27 having Defendants “manipulate their ratings criteria to ensure Usana remains the 28 top-rated supplement company in the guide and actively sandbag Usana’s 1 competitors’ ratings and certifications.” (Id. at 2). According to Ariix, all this is done 2 in an effort to “ratchet up sales for Usana products.” (Id. at 1–2). 3 More specifically, Ariix alleges that MacWilliam was a former Usana sales 4 representative and on Usana’s advisory board member until 2005, when 5 MacWilliam decided he should resign because he believed his affiliation with 6 Usana gave the appearance of bias. (Id. ¶ 23). He approached Usana executives, 7 explaining that he’d like to continue publishing the Guide in exchange for Usana’s 8 financial support: “I am going to create more of a third-party appearance, but I’d 9 like you to use me for speaking and support me.” (Id.). Usana allegedly agreed, 10 but only if MacWilliam promised to “give [Usana] the number-one rating.” (Id.). Ariix 11 alleges that MacWilliam accepted, “assuring Usana it would get the number-one 12 rating despite the guide’s claims of independence and objectivity.” (Id.). Ariix 13 further alleges that Defendants are “entirely dependent” on compensation from 14 Usana. (Id. ¶ 26). For instance, “Usana directly pays [Defendants] hundreds of 15 thousands of dollars per year in fixed stipends, speaking fees, promotion fees, and 16 travel fees”; Usana “heavily promotes the guide to its sales representatives and 17 encourages them to purchase it”; Defendants “almost always tie[] the publication 18 of a new edition of the guide to the date of Usana’s annual convention” so as to 19 “continue to direct associates to the latest edition” and ensure “robust sales” of the 20 Guide; and at Usana’s speaking events, “MacWilliam is the only purportedly 21 ‘independent’ speaker who is allowed to promote and sell his own products at such 22 events.” (Id. ¶¶ 26–27). Ariix contends that there is a direct correlation between 23 awarding Usana the top rating in the Guide and an increase in Defendants’ book 24 sales: “not only do[] [Defendants] rate Usana highest because of the incentive to 25 increase Usana’s sales and to keep Usana happy, but also because, driven by the 26 dictates of Usana, Usana’s distributors are their largest market segment [for sales 27 of the Guide].” (Id. ¶ 29). 28 As evidence of this alleged illicit agreement between Defendants and Usana, 1 Ariix claims that during times when Defendants “have failed to meet their 2 commitments to Usana”—i.e., awarding the top Gold Medal certification to another 3 company—“Usana punished [Defendants] for failing to deliver per their agreement 4 by cutting them off financially.” (Id. ¶ 31). Ariix points to one such instance in 2008, 5 when an Usana executive explained to MacWilliam that “we don’t want to stand up 6 and say ‘we’re one of the five best’”—Usana wants to be “number one.” (Id.). 7 MacWilliam allegedly asked in response whether it would “help if Usana is number 8 one in some way,” to which the Usana executive responded, “of course it would 9 help.” (Id.). NutriSearch allegedly “cured this breach of its secret agreement with 10 Usana by coming out with a new award called ‘Editor’s Choice’ and giving it to 11 Usana.” (Id. ¶ 32). NutriSearch allegedly did so “with the explicit understanding 12 that the new award—which allowed Usana to again be ‘the best’—would entitle 13 MacWilliam to return to the Usana event circuit to speak and sell more books, and 14 thus earn more speaking fees and book royalties.” (Id.). 15 In the same vein, the following year when “another company was actually 16 going to beat Usana,” MacWilliam explained the situation to Usana, to which an 17 Usana executive responded that “we pay [Defendants] to make us number one.” 18 (Id. ¶ 35). MacWilliam then advised Usana that it would either need to change 19 something in its formula or Defendants would need to change their matrix. (Id.). 20 MacWilliam “worked with Usana to adjust his allegedly objective matrix so that 21 Usana stayed on top.” (Id. ¶ 35). Ariix alleges that, each year thereafter, “Usana 22 required MacWilliam to adjust his matrix” to ensure Usana remained the top-rated 23 company in the Guide. (Id. ¶ 36 (emphasis in original)). Ariix argues that the Guide 24 is thus “not only a tool for Usana’s promotion, but also for the sabotage of its 25 competitors,” like Ariix. (Id. ¶ 42). 26 B. Financial Arrangement 27 Ariix specifically contends that “NutriSearch and MacWilliam can be liable for 28 their statements intended to influence consumers to buy Usana’s products” 1 because “they had an explicit agreement with Usana to act as its clandestine 2 agents, juicing its sales under a financial agreement hidden from consumers, to 3 whom they hold themselves out as independent, objective nutrition supplement 4 reviewers.” (Dkt. 45 at 8). On appeal, the panel confirmed this view, finding that 5 Ariix had “plausibly alleged that NutriSearch and MacWilliam published the Guide 6 mainly with the economic goal of furthering their own self-interests beyond simply 7 benefiting from sales of the publication.” Ariix, 985 F.3d at 1117. They held that 8 Ariix had sufficiently alleged that Defendants “published the Guide mainly to reap 9 the financial benefits of a hidden marketing arrangement with Usana rather than 10 to inform consumers about nutritional supplements.” Id. 11 Indeed, the SAC plausibly alleges the existence of a hidden financial 12 agreement between Defendants and Usana. According to allegations in the SAC, 13 MacWilliam was paid “hundreds of thousands of dollars” under the guise of 14 speaking fees in exchange for awarding Usana’s products the Guide’s number- 15 one rating. (SAC ¶¶ 26–27). The SAC states that, on occasions when Defendants 16 failed to name Usana as the Gold Medal recipient, Usana withdrew its financial 17 support from Defendants, who were then faced with declining book sales. (Id. 18 ¶ 31). In response, Defendants created a new award, called the “Editor’s Choice” 19 award, and gave it to Usana “with the explicit understanding that the new 20 award . . . would entitle MacWilliam to return to the Usana event circuit to speak 21 and sell more books, and thus earn more speaking fees and book royalties.” (Id. 22 ¶ 32). To be sure, such an alleged arrangement was never made apparent to 23 consumers—the Guide was explicitly touted as an independent publication, and 24 Defendants never disclosed that Usana’s number-one rating was the result of the 25 parties’ secret dealings or that the Guide was influenced by a third-party. 26 While it may be true that the parties’ “hidden financial agreement” helped 27 increase the sale of Usana’s products, the SAC does also allege that NutriSearch 28 and MacWilliam were financially incentivized to promote those products to 1 consumers. As the SAC explains, sales of the Guide to Usana’s distributors 2 account for the vast majority of the Guide’s sales, meaning that refusing to award 3 Usana the number-one rating and thereby failing to promote Usana’s products 4 removes Defendants’ access to its largest market segment and its main source of 5 income. (Id. ¶ 29). Awarding Usana the top rating afforded Defendants the 6 opportunity to not only sell more of the Guide due to increased distribution access, 7 but also earn “hundreds of thousands of dollars per year in fixed stipends, speaking 8 fees, promotion fees, and travel costs.” (Id. ¶ 26). The parties here had a clear 9 financial arrangement designed to influence consumers to buy products from a 10 third-party in which Defendants had a direct financial stake. See also Grasshopper 11 House, LLC v. Clean & Sober Media, LLC, No. 2:18-cv-00923-SVW-RAO, 12 2018 WL 6118440, at *7 (C.D. Cal. July 18, 2018) (citing Enigma Software Grp. 13 USA, LLC v. Bleeping Comput. LLC, 194 F. Supp. 3d 263, 294 (S.D.N.Y. 2016) 14 (holding that “by alleging that [Defendant] earns a commission on directed sales 15 of [products sold by Plaintiff’s competitor], the SAC adequately pleads that 16 [Defendant] had an economic incentive to engage in such promotion,” and that 17 such commercial speech was “made for the purpose of influencing consumers to 18 buy products in which [Defendant] has a financial stake”) (internal citations and 19 brackets omitted)). 20 C. Agency Relationship 21 In light of the financial arrangement between Defendants and Usana, the 22 Court is persuaded that an agency relationship existed between them, and that 23 Defendants’ alleged misrepresentations were made within the scope of this 24 principal-agent relationship. 25 1. Defendants Acted as Usana’s Agent 26 “Agency is the fiduciary relationship that arises when one person (a 27 ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act 28 on the principal’s behalf and subject to the principal’s control, and the agent 1 manifests assent or otherwise consents so to act.” Mavrix Photographs, LLC v. 2 LiveJournal, Inc., 873 F.3d 1045, 1054 (9th Cir. 2017) (as amended) (quoting 3 Restatement (Third) of Agency (“Restatement”) § 1.01 (Am. Law Inst. 2006)). “For 4 an agency relationship to exist, an agent must have authority to act on behalf of 5 the principal and ‘[t]he person represented [must have] a right to control the actions 6 of the agent.’” Id. (quoting Restatement § 1.01 cmt. c). Actual control is not 7 necessary; as long as there is an agreement that the principal has the right to 8 control the agent, an agency relationship exists. United States v. Bonds, 608 F.3d 9 495, 506–07 (9th Cir. 2010) (“[W]e do not maintain there needs to be an explicit 10 agreement, but there must be at least some manifestation of assent to the 11 principal’s right to control.”). 12 First, the Court is persuaded that Ariix has plausibly alleged facts that 13 support the inference that Usana manifested assent to Defendants acting on its 14 behalf. The SAC discusses an agreement made between Defendants and Usana 15 that Defendants would be awarded the number-one rating in the Guide “in 16 exchange [for] financial support from Usana,” including speaking fees and access 17 to Usana’s distributors in order to sell more copies of the Guide. (SAC ¶ 23). The 18 SAC states: 19 This agreement firmly established that, though cloaked in 20 secrecy so that the guide would continue to appear independent, MacWilliam and NurtriSearch’s agreement 21 with Usana was one in which Usana exercised control over 22 their editorial discussions, and MacWilliam and NutriSearch’s renumeration was tied to and dependent on 23 selling more Usana products, principally by elevating 24 Usana above all its competitors in the guide (and keeping it that way). 25 26 (Id ¶ 24). Specifically, the SAC discusses an exchange between Defendants and 27 Usana dating back to 2005 where MacWilliam approached Usana and asked it to 28 “use [him] for speaking and support [him],” and Usana agreed on the condition that 1 MacWilliam “give [Usana] the number-one rating.” (Id. ¶ 23). In a later year, 2 perhaps around 2008, when Ariix realized another company would beat Usana 3 according to Ariix’s rating criteria at the time, MacWilliam approached Usana about 4 the situation and proposed changing the ratings “matrix” to ensure that Usana 5 would remain number one. (Id. ¶ 35). Usana “agreed, and MacWilliam worked with 6 Usana to adjust his allegedly objective matrix so that Usana stayed on top.” (Id.). 7 Defendants argue in response that Ariix’s allegations are merely conclusory and 8 that more detail is needed regarding the alleged agreement. (Dkt. 50 at 11). But 9 the precise details of the agreement are not required at this stage in the litigation, 10 and the Court finds that the SAC sufficiently establishes the existence of an 11 agreement created through Usana’s assent. 12 Next, the Court finds that the SAC plausibly alleges that Defendants 13 consented to act on Usana’s behalf and agreed to be subject to its control. As 14 previously discussed, Ariix alleges that MacWilliam was the one to approach 15 Usana and propose that he favor Usana in his ratings in exchange for speaking 16 opportunities and financial support. (SAC ¶ 23). The complaint details the lengths 17 Defendants would go to ensure they retained this financial support, including 18 “arbitrarily revising their so-called objective scientific criteria or by tweaking the 19 advisable amounts of particular ingredients of a supplement formula in order to 20 weight the criteria in Usana’s favor.” (Id. ¶ 36) (“Usana required MacWilliam to 21 adjust his matrix in coordination with Usana so that Usana’s new formulation would 22 come out on top . . . And every year, [MacWilliam] did so.”) (emphasis in original). 23 Ariix also alleges that on occasions when Defendants failed to meet their 24 commitments to Usana, Usana would punish Defendants by cutting them off 25 financially, and that Defendants capitulated by creating the “Editor’s Choice” award 26 and giving it to Usana in exchange for being allowed to return to “the Usana event 27 circuit to speak and sell more books, and thus earn more speaking fees and book 28 royalties.” (Id. ¶ 31). The relationship described in the complaint plainly suggests 1 one in which Defendants voluntarily yielded to Usana’s desires and complied with 2 its directives in order to secure Usana’s financial backing. 3 The existence of an agency relationship also depends on the level of control 4 a principal exerts over the agent. See Bonds, 608 F.3d at 505 (quoting NLRB v. 5 Friendly Cab Co., 512 F.3d 1090, 1096 (9th Cir. 2008)). The Court need not find 6 that the principal “actually control[s] [the] agent as a prerequisite for establishing 7 a[n] [agency] relationship, rather the principal need only have ‘a right to control the 8 actions of the agent.’” McAdory v. M.N.S. & Assocs., LLC, No. 3:17-CV-00777-HZ, 9 2021 WL 2321634, at *7 (D. Or. June 7, 2021) (emphasis added) (citing 10 Restatement § 1.01 cmt. c). The Court is persuaded here that the SAC supports 11 an inference that Usana exerted control over Defendants. The complaint suggests 12 that “Usana exercised control over [Defendants’] editorial decisions,” (SAC ¶ 24), 13 and that Usana was clear in its directive that it be awarded the number-one award 14 or else it would withdraw its financial support. Defendants now attempt to parse 15 the complaint’s allegations and frame Usana’s actions as the exercise of mere 16 “influence” rather than as “control.” (Dkt. 50 at 12 (“To be sure, Ariix’s allegations 17 plausibly suggest that Usana might have sometimes attempted to influence 18 MacWilliam’s behavior and exerted that influence by declining to promote 19 MacWilliam and the Guide when its reviews were less than superlative. . . . [But] 20 under bedrock principles of agency law, that’s just not enough.”). Semantics aside, 21 though, the nature of the allegations remains this: Usana exercised its right to 22 control Defendants by conditioning its financial support on the guarantee that it 23 would remain the top-rated supplement company in the Guide. That Usana went 24 so far as to require that Defendants change their entire ratings matrix to ensure 25 Usana received the number-one award is highly suggestive of Usana’s right to 26 control not only Defendants’ end product, but also the manner and methodology 27 of Defendants’ performance. See Mavrix Photographs, 873 F.3d at 1055. 28 The SAC plausibly alleges that Usana manifested assent, Defendants 1 consented to act as Usana’s agent, and Usana exercised control over Defendants. 2 Ariix has thus pled facts to support the inference that Defendants had an agency 3 relationship with Usana. 4 2. Scope of Defendants’ Authority 5 Relying on the Restatement, the Ninth Circuit recognizes four avenues 6 through which an agency relationship may be established: “actual authority, 7 apparent authority, ratification, and employment (respondeat superior).” Jones v. 8 Royal Admin. Servs., Inc., 887 F.3d 443, 449 (9th Cir. 2018). Here, Ariix argues 9 that agency was created through actual authority given to Defendants to act on 10 Usana’s behalf, Usana’s exercise of substantial control over Defendants, and 11 Usana’s ratification of Defendants’ actions. (Dkt. 45 at 9–15). 12 An agent has actual authority to take a certain action when “the agent 13 reasonably believes, in accordance with the principal’s manifestations to the agent, 14 that the principal wishes the agent so to act.” Restatement § 2.01. Actual authority 15 is limited to actions “specifically mentioned to be done in a written or oral 16 communication” or “consistent with” a principal’s “general statement of what the 17 agent is supposed to do.” Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 940 18 (9th Cir. 2017) (quoting N.L.R.B. v. Dist. Council of Iron Workers of the State of 19 Cal. & Vicinity, 124 F.3d 1094, 1098 (9th Cir. 1997)). Ratification, on the other 20 hand, occurs when the principal accepts the benefit of the agent’s act either with 21 actual knowledge of the material facts or with “knowledge of facts that would have 22 led a reasonable person to investigate further”—also known as “willful ignorance.” 23 Henderson v. United Student Aid Funds, Inc., 918 F.3d 1068, 1073–75 24 (9th Cir. 2019). 25 Ariix’s allegations regarding the nature of the relationship between 26 Defendants and Usana are consistent with the elements of an agency relationship 27 created through actual authority. Usana communicated a clear directive that 28 Defendants do what it takes to ensure Usana received the top award in the Guide. 1 Usana threatened to withdraw financial support and deny Defendants access to 2 Usana’s distribution market if they didn’t comply with this directive. As alleged in 3 the SAC, Usana was direct in its instructions to Defendants, and was aware of 4 Defendants’ efforts to falsely market the Guide as an objective and independent 5 publication. MacWilliam even worked hand-in-hand with Usana to reformulate the 6 so-called objective rating criteria to ensure Defendants could follow through on 7 their agreement to keep Usana as the top-rated company. And while the precise 8 details of their agreement remain unknown, including whether Usana’s instructions 9 were written or communicated verbally to Defendants, such facts are appropriate 10 for discovery at a later stage in this litigation. At this pleading stage, the Court is 11 persuaded that Defendants acted with actual authority and pursuant to an actual 12 agreement with Usana to falsely advertise the Guide as an objective, independent 13 publication on which consumers believed they could safely rely. 14 III. Conspiracy 15 Finally, Ariix suggests that Usana’s goods may be attributable to Defendants 16 because “they consciously committed to an unlawful scheme that goes directly to 17 the heart” of the third Lanham Act element. (Dkt. at 17). Ariix argues that a “sham 18 marketing scheme,” such as the one alleged in this case, amounts to a civil 19 conspiracy, which occurs “when the parties have reached ‘a unity of purpose or a 20 common design and understanding, or a meeting of the minds in an unlawful 21 arrangement.’” (Id. (quoting Transgo, Inc. v. Ajac Transmission Parts Corp., 22 768 F.2d 1001, 1020 (9th Cir. 1985)). Ariix maintains that “Usana’s goods can be 23 imputed to NutriSearch and MacWilliam as co-conspirators” and knowing 24 participants in the scheme. (Id. at 18). 25 However, having already established that Defendants were acting as 26 Usana’s agents pursuant to actual authority from Usana, the Court concludes that 27 the SAC plausibly alleges that Defendants acted with the purpose of influencing 28 consumers to buy their goods or services. The Court therefore need not reach the 1 ||issue of whether Ariix has pled enough facts to suggest the existence of a 2 ||conspiracy. 3 IV. CONCLUSION 4 The allegations in the complaint satisfy the third element of a Lanham Act 5 || claim. A scheduling order will follow. 6 IT IS SO ORDERED. 7 8 ||Dated: April 13, 2023 lau A (Buywy 9 Hon. Larry Alan Burns 40 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28