Baird v. Osteostrong Franchising, LLC.

Opinion

1 2 3 4 5 6 9 10 JOHN P. BAIRD; BRET KURIHARA; OS No. 2:20-cv-02010-TLN-DMC NEW MEXICO, LLC; BNS RD, LLC; 11 SEAN SIMPSON; CHARLA SIMPSON; MARY JO MCHENRY and K& L 12 WELLNESS, LLC, ORDER DENYING PLAINTIFFS’ MOTION FOR A TEMPORARY 13 Plaintiffs, RESTRAINING ORDER 14 v. 15 OSTEOSTRONG FRANCHISING, LLC; KYLE ZAGRODZKY and JOHN 17 Defendants. 18

19 20 This matter is before the Court pursuant to Plaintiffs John P. Baird, Bret Kurihara, OS 21 New Mexico, LLC, BNS RD, LLC, Sean Simpson, Charla Simpson, Mary Jo McHenry, and 22 K&L Wellness, LLC’s (collectively, “Plaintiffs”) Motion for a Temporary Restraining Order. 23 (ECF No. 4.) No opposition has been filed by Defendants OsteoStrong Franchising, LLC, Kyle 24 Zagrodzky, and John Jaquish (collectively, “Defendants”). For the reasons set forth below, 25 Plaintiffs’ motion is DENIED. 26 / / / 27 / / / 28 / / / 2 Defendant OsteoStrong Franchising, LLC (“OsteoStrong”) is a company that sells 3 franchises for bone density improvement centers that utilize osteogenic loading equipment.1 4 (ECF No. 1 at ¶ 22.) The equipment is branded as “Spectrum equipment” pursuant to a non- 5 exclusive license from Performance Health Systems. (Id. at ¶¶ 19, 20.) OsteoStrong claims 6 Spectrum equipment increases bone density, prevents osteoporosis, and “diagnose[s], cure[s], 7 mitigate[s], treat[s], or prevent[s] medical diseases.” (Id. at ¶¶ 16, 89.) 8 Plaintiffs are small business owners and franchisees of OsteoStrong centers throughout the 9 United States. (ECF No. 4 at ¶¶ 1, 2.) Plaintiffs allege that OsteoStrong “intentionally omit[s] 10 certain information, mak[es] affirmative misrepresentations, and intentionally convey[s] false 11 information prior to executing the [franchise agreement] in an effort to induce potential 12 franchisees into signing the agreement.” (Id. at ¶ 35.) Specifically, Plaintiffs were harmed by 13 Defendants’ intentional omission of information regarding known bankruptcies and lawsuits in 14 Defendants’ Franchise Disclosure Document (“FDD”),2 their affirmative misrepresentation of the 15 patent rights and proprietary nature of OsteoStrong’s equipment, and their intentional 16 misrepresentation of their organizational relationship with motivational speaker Tony Robbins. 17 (Id. at ¶¶ 36, 42–47, 48–58, 59–65.) 18 Plaintiffs further allege that OsteoStrong also “create[s] an impossibility of performance 19 under the [franchise agreement] and negligently expos[es] franchisees to criminal and civil 20 liability.” (Id. at ¶ 35.) Specifically, OsteoStrong “violates [f]ederal law by marketing its system 21 as a medical treatment,” and further fails to comply with the Federal Food, Drug, and Cosmetic 22

23 1 “Osteogenic loading” exercises are defined in the Complaint as equipment “intended to measure forces on bone and muscle, and through the application of force, or loads, foster 24 strengthening of both bone and muscle tissue.” (ECF No. 1 at ¶ 17.)

25 2 As Plaintiffs note, in accordance with the Federal Trade Commission’s Franchise Rule, 16 26 C.F.R. Parts 436 and 437, a franchisor is required to serve a complete and accurate FDD on each potential franchisee at least 14 days before entering into a Franchise Agreement (“FA”) with the 27 potential franchisee. (Id. at ¶ 23.) Plaintiffs also note that they received and relied upon FDDs issued by OsteoStrong. (Id. at ¶¶ 37–41.) 28 1 Act (“FDCA”) and the U.S. Food and Drug Administration (“FDA”) regulations for medical 2 devices. (Id. at ¶¶ 67, 68–88.) Additionally, OsteoStrong “requires franchisees to use these same 3 marketing materials and practices” and “may unilaterally terminate the FA with the [f]ranchisee 4 for failure to do so.” (Id. at ¶¶ 67, 110.) Plaintiffs also allege that the FAs require them to 5 comply with “all applicable laws, regulations, codes, and ordinances including, without 6 limitation, all governmental regulations relating to sales and marketing, which includes the FDA.” 7 (Id. at ¶ 113.) However, Plaintiffs believe that performance under the FA is impossible because 8 OsteoStrong mandates the usage of marketing materials and practices that “[do] not comply with 9 all applicable laws, regulations, codes and ordinances.” (Id. at ¶ 114.) Plaintiffs assert that had 10 they been aware the marketing materials and practices provided to them were not in compliance 11 with local and federal laws, they would not have signed the FAs. (Id. at ¶ 120.) 12 On October 7, 2020, Plaintiff filed a Complaint in this Court, alleging claims for: (1) 13 common law fraud; (2) common law fraudulent inducement; (3) common law negligent 14 misrepresentation by Defendant OsteoStrong; (4) common law negligent misrepresentation by 15 Defendants Zagrodzky and Jaquish, individually; (5) unjust enrichment; (6) violations of the 16 California Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code §§ 17200–17210); (7) 17 violations of the California Corporations Code; (8) violations of 15 U.S.C. § 52; (9) violations of 18 35 U.S.C. § 292; (10) declaratory judgment that the franchise agreements are void as contracts for 19 an illegal purpose or otherwise contrary to public policy; and (11) preliminary and permanent 20 injunctive relief. (See ECF No. 1 at 36–50.) 21 On November 4, 2020, Plaintiffs filed the instant Motion for a Temporary Restraining 22 Order to enjoin Defendants from doing the following: 23 • Representing that their Spectrum equipment or the OsteoStrong system is able to diagnose, treat, or cure any medical condition or using claims like “reversing 24 Osteoporosis” or “reversing type 2 Diabetes;” 25 • Representing that OsteoStrong owns any patented technology; • Representing that the equipment is safe; 26 • Representing that Tony Robbins is a Partner in OsteoStrong; 27 • Ceasing to provide access to services and support as required under the Franchise Agreement and as established by regular practice for the operation of 28 the franchises. 1 (ECF No. 4.) Defendants have not filed an opposition. 3 A temporary restraining order is an extraordinary remedy. The purpose of a temporary 4 restraining order is to preserve the status quo pending a fuller hearing. See Fed. R. Civ. P. 65. In 5 general, “[t]emporary restraining orders are governed by the same standard applicable to 6 preliminary injunctions.” Aiello v. One West Bank, 2010 WL 406092, at *1 (E.D. Cal. Jan. 29, 7 2010) (internal citations omitted); see also Eastern District of California Local Rule (“Local 8 Rule”) 231(a). 9 Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear 10 showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 11 U.S. 7, 22 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam)). “The 12 purpose of a preliminary injunction is merely to preserve the relative positions of the parties until 13 a trial on the merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981); see also 14 Costa Mesa City Emps. Ass’n v. City of Costa Mesa, 209 Cal. App. 4th 298, 305 (2012) (“The 15 purpose of such an order is to preserve the status quo until a final determination following a 16 trial.”); GoTo.com, Inc. v. Walt Disney, Co., 202 F.3d 1199, 1210 (9th Cir. 2000) (“The status quo 17 ante litem refers not simply to any situation before the filing of a lawsuit, but instead to the last 18 uncontested status which preceded the pending controversy.”). 19 “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed 20 on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, 21 [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” 22 Winter, 555 U.S. at 20. A plaintiff must “make a showing on all four prongs” of the Winter test 23 to obtain a preliminary injunction. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 24 (9th Cir. 2011). In evaluating a plaintiff’s motion for preliminary injunction, a district court may 25 weigh the plaintiff’s showings on the Winter elements using a sliding-scale approach. Id. A 26 stronger showing on the balance of the hardships may support issuing a preliminary injunction 27 even where the plaintiff shows that there are “serious questions on the merits . . . so long as the 28 plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the 1 public interest.” Id. Simply put, plaintiffs must demonstrate, “that [if] serious questions going to 2 the merits were raised [then] the balance of hardships [must] tip[ ] sharply” in [p]laintiffs’ favor 3 in order to succeed in a request for preliminary injunction. Id. at 1134–35. 5 The party moving for a temporary restraining order must clearly show, in an affidavit or 6 verified complaint, “that immediate and irreparable injury, loss, or damage will result to the 7 movant before the adverse party can be heard in opposition.” Fed. R. Civ. P. 65(b)(1)(A). The 8 Local Rules impose additional requirements for a temporary restraining order. Under Local Rule 9 231, “courts will consider whether the applicant could have sought relief by motion for 10 preliminary injunction at an earlier date without the necessity for seeking last-minute relief by 11 motion for temporary restraining order.” Local Rule 231(b). The rule continues, “[s]hould the 12 Court find that the applicant unduly delayed in seeking injunctive relief, the Court may conclude 13 that the delay constitutes laches or contradicts the applicant’s allegations of irreparable injury and 14 may deny the motion solely on either ground.” Id. 15 It remains unclear from Plaintiffs’ Complaint how much time has passed between 16 Plaintiffs’ discovery of Defendants’ unlawful practices and Plaintiffs’ filing of this lawsuit. (See 17 ECF No. 1 at 12 (noting the years when Plaintiffs “received and relied upon an FDD” as 2013, 18 2014, 2015, and 2017); ECF No. 4 at 10 (stating that “[a]s early as 2013, OsteoStrong marketed 19 direct mailing to prospective franchisees, including Plaintiffs)). Almost one month has now 20 passed since Plaintiffs’ filing of this lawsuit. Additionally, Linda Burbank of Plaintiff K&L 21 Wellness, LLC filed a declaration (ECF No. 4-7) with Plaintiffs’ motion that surprisingly contains 22 no information about the necessity of immediate relief. The Court therefore concludes that the 23 length of time between the first instance of alleged harm and Plaintiffs’ motion contradicts 24 Plaintiffs’ allegation of immediate, irreparable injury. 25 If the Court finds that Plaintiffs have not met their burden as to one Winter prong, then the 26 Court need not address the remaining prongs as Plaintiffs have not met their burden for injunctive 27 relief. See Alliance for the Wild Rockies, 632 F.3d at 1135 (stating that the Winter test requires a 28 plaintiff to “make a showing on all four prongs”). The Court finds Plaintiffs have failed to make 1 a showing of immediate, irreparable injury because Plaintiffs have not pleaded in their Complaint 2 or demonstrated in their motion any specific dates or times to signify that relief is urgently 3 needed. Thus, the Court declines to address the remaining Winter factors. 4 Moreover, it is the practice of this district to construe a motion for temporary restraining 5 order as a motion for preliminary injunction. Local Rule 231(a); see also Aiello v. One West 6 Bank, 2010 WL 406092, at *1 (E.D. Cal. Jan. 29, 2010) (“Temporary restraining orders are 7 governed by the same standard applicable to preliminary injunctions.”) (internal quotation and 8 citations omitted). Denial of the instant temporary restraining order motion has no bearing on the 9 Court’s ultimate analysis of Plaintiffs’ claims, once it has heard from Defendants. Plaintiffs have 10 not cited any persuasive reason why this Court should rule on a motion for a temporary 11 restraining order before Defendants have had an opportunity to respond. Thus, the Court will 12 treat Plaintiffs’ motion for a temporary restraining order as a motion for preliminary injunction. 14 For the aforementioned reasons, the Court DENIES Plaintiffs’ Motion for a Temporary 15 Restraining Order and instead construes it as a motion for a preliminary injunction. (ECF No. 4.) 16 Plaintiffs shall serve Defendants with a copy of this Order within three days of the date of this 17 Order and submit proof of service to the Court. Fed. R. Civ. P. 65(a)(1) (“The court may issue a 18 preliminary injunction only on notice to the adverse party.”). The Court hereby schedules the 19 motion hearing for 2:00 p.m. on December 17, 2020. For the parties’ convenience, the Court 20 notes that under Local Rule 230, any opposition or statement of non-opposition from Defendants 21 must be filed and served no later than 14 days before the noticed hearing date, and any reply by 22 Plaintiffs must be filed and served no later than seven days before that date. Local Rule 230(c)– 23 (d). 25 DATED: November 5, 2020 26 27 28