New Directions Program v. Sierra Health and Wellness Centers LLC

E.D. California

New Directions Program v. Sierra Health and Wellness Centers LLC

DecidedApril 9, 2024

Docket2:22-cv-01090

StatusUnknown

This text of New Directions Program v. Sierra Health and Wellness Centers LLC (New Directions Program v. Sierra Health and Wellness Centers LLC) is published on Counsel Stack Legal Research, covering District Court, E.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

New Directions Program v. Sierra Health and Wellness Centers LLC, (E.D. Cal. 2024).

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Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 NEW DIRECTIONS PROGRAM, et al., No. 2:22-cv-01090-DAD-JDP 12 Plaintiffs, 13 v. ORDER DENYING THE MOVING DEFENDANTS’ MOTION TO DISMISS 14 SIERRA HEALTH AND WELLNESS PLAINTIFFS’ FIRST AMENDED CENTERS LLC, et al., COMPLAINT 15 Defendants. (Doc. No. 25) 16

17 18 This matter is before the court on the motion to dismiss filed by defendants Sierra Health 19 and Wellness Centers LLC, Sierra Health and Wellness Group LLC, and Recovery Happens 20 Counseling Services, Inc. (collectively, the “moving defendants”) on February 1, 2024. (Doc. 21 No. 25.) On February 22, 2024, the pending motion was taken under submission on the papers. 22 (Doc. No. 27.) For the reasons explained below, the pending motion to dismiss will be denied. 23 BACKGROUND 24 On November 1, 2023, the court issued an order granting in part and denying in part 25 defendants’ motion to dismiss plaintiffs’ original complaint, with leave to amend. (Doc. No. 19.) 26 On December 18, 2023, plaintiffs David Gust and New Directions Program filed the operative 27 first amended complaint (“FAC”), asserting claims for false advertising and copyright 28 ///// 1 infringement against the moving defendants and defendant Angela Chanter. (Doc. No. 24.) In 2 their FAC, plaintiffs allege the following. 3 Plaintiff Gust is the “principal and owner” of plaintiff New Directions Program and “has 4 been an expert in the field of treatment of addi[c]tion and intoxication for decades.” (Id. at ¶ 2.) 5 In the early 1980s, plaintiff Gust “developed an outpatient treatment model based on the principle 6 of addiction as [a] pathological relationship to intoxication rather than a preference [for] a 7 specific drug.” (Id. at ¶ 10.) Plaintiff Gust “has published writings, authored books and made 8 presentations regarding the ‘Gust model’ for decades.” (Id. at ¶ 11.) 9 One of plaintiff Gust’s students was Jon Daily, the founder of defendant Recovery 10 Happens Counseling Services Inc. (“RHCS”). (Id.) Daily considered plaintiff Gust “a close 11 colleague, mentor, and friend . . . .” (Id. at ¶ 17.) After Daily passed away, his wife, defendant 12 Chanter, became “the principal” of defendant RHCS. (Id. at ¶ 13.) “[A]t some point in time,” 13 defendants Sierra Health and Wellness Centers LLC and Sierra Health and Wellness Group LLC 14 (collectively, “Sierra”) “purchased or acquired . . . the assets of” defendant RHCS. (Id. at ¶ 3.) 15 Defendant RHCS “the corporate entity was dissolved” in 2020. (Id. at ¶ 4.) However, the Sierra 16 defendants are now “doing business in the name of ‘Recovery Happens’ as well as in the name 17 ‘New Start Recovery Solutions.’” (Id. at ¶ 3.) Jon Daily “located his business Recovery Happens 18 in the same building as Gust in Fair Oaks,” a suburb outside Sacramento. (Id. at ¶ 27.) 19 Plaintiffs allege that defendants engaged in false advertising through statements made on 20 Facebook and on the moving defendants’ websites regarding the Gust model, including by falsely 21 claiming that Daily created the Gust model and that defendants employ the Daily/Gust model in 22 their treatment services. (Id. at ¶¶ 12, 15.) In their FAC, plaintiffs identify four specific 23 statements made by defendants that plaintiffs assert constitute false advertising, each of which the 24 court will address in further factual detail below in resolving the pending motion to dismiss. (See 25 id. at ¶¶ 15–23.) 26 Plaintiffs allege that plaintiff Gust authored a book in 1994 entitled “Effective Outpatient 27 Treatment for Adolescents: Principles, Practices, and a Program model for Working with 28 Adolescents Experiencing Alcohol and Other Drug Related Problems” (“Gust Book”) that “is 1 registered . . . with a US Copyright number TXu000632984 / 1994-05-12.” (Id. at ¶ 36.) 2 Plaintiffs allege the following regarding three instances of copyright infringement by defendants 3 with respect to the Gust Book. First, defendants RHCS and Chanter copied treatment documents 4 from the Gust Book, including Appendices A through G, I, J, K and N, and provided these 5 treatment documents to their own clients. (Id. at ¶¶ 39, 42.) Plaintiff Gust has seen “specific 6 exact copies” of treatment documents. (Id. at ¶ 39.) Second, defendant RHCS markets and sells 7 a DVD and booklet called “‘Treating Adolescents: The Addiction to Intoxication’” “on a website 8 called the ‘Recovery Bookstore.’” (Id. at ¶ 43.) Daily, who is the “presenter” on the DVD, 9 copied Appendices D and E from the Gust Book and then used them in that recorded presentation. 10 (Id.) These copied appendices contain “the core of the intervention phase of the Gust model.” 11 (Id.) Third and finally, the Gust Book was copied in a brochure offered by the moving 12 defendants. (Id. at ¶ 44.) The brochure lists “six stages of recovery from chemical problems” 13 that are identical to those described in the Gust Book: The brochure and Gust Book each describe 14 the six stages as “Recognition, Admission, Petition, Acceptance, Volition, Conversion.” (Id.) 15 Based on the foregoing, plaintiffs assert two claims against defendants: (1) false 16 advertising in violation of 15 U.S.C. § 1125(a) (“the Lanham Act”) with respect to each of the 17 four statements plaintiffs have identified in their FAC; and (2) copyright infringement in violation 18 of 17 U.S.C. § 501 with respect to the Gust Book. (Doc. No. 24 at 1.) 19 The moving defendants filed the pending motion to dismiss on February 1, 2024. (Doc. 20 No. 25.) In moving to dismiss, defendants argue that plaintiffs have failed to sufficiently allege 21 facts to state plausible claims. (Doc. No. 25-1.) Specifically, the moving defendants argue that 22 plaintiffs have failed to plead their false advertising claim with the particularity required by 23 Federal Rule of Civil Procedure 9(b), to sufficiently allege falsity, and to sufficiently allege 24 deception and materiality, which are all required to state a cognizable claim of false advertising 25 under the Lanham Act sounding in fraud. (Id. at 7–12.) Similarly, the moving defendants argue 26 that plaintiffs have not alleged sufficient facts in support of their copyright infringement claims. 27 ///// 28 ///// 1 (Id. at 12–14.)1 Plaintiffs filed their opposition to the pending motion on February 12, 2024. 2 (Doc. No. 26.) Defendants filed their reply thereto on February 26, 2024. (Doc. No. 28.) 3 LEGAL STANDARD 4 The purpose of a motion to dismiss brought pursuant to Rule 12(b)(6) is to test the legal 5 sufficiency of the complaint. N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 6 1983). “Dismissal can be based on the lack of a cognizable legal theory or the absence of 7 sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 8 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough facts to state a claim to 9 relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A 10 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 11 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 12 Iqbal, 556 U.S. 662, 678 (2009).

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 NEW DIRECTIONS PROGRAM, et al., No. 2:22-cv-01090-DAD-JDP 12 Plaintiffs, 13 v. ORDER DENYING THE MOVING DEFENDANTS’ MOTION TO DISMISS 14 SIERRA HEALTH AND WELLNESS PLAINTIFFS’ FIRST AMENDED CENTERS LLC, et al., COMPLAINT 15 Defendants. (Doc. No. 25) 16

17 18 This matter is before the court on the motion to dismiss filed by defendants Sierra Health 19 and Wellness Centers LLC, Sierra Health and Wellness Group LLC, and Recovery Happens 20 Counseling Services, Inc. (collectively, the “moving defendants”) on February 1, 2024. (Doc. 21 No. 25.) On February 22, 2024, the pending motion was taken under submission on the papers. 22 (Doc. No. 27.) For the reasons explained below, the pending motion to dismiss will be denied. 23 BACKGROUND 24 On November 1, 2023, the court issued an order granting in part and denying in part 25 defendants’ motion to dismiss plaintiffs’ original complaint, with leave to amend. (Doc. No. 19.) 26 On December 18, 2023, plaintiffs David Gust and New Directions Program filed the operative 27 first amended complaint (“FAC”), asserting claims for false advertising and copyright 28 ///// 1 infringement against the moving defendants and defendant Angela Chanter. (Doc. No. 24.) In 2 their FAC, plaintiffs allege the following. 3 Plaintiff Gust is the “principal and owner” of plaintiff New Directions Program and “has 4 been an expert in the field of treatment of addi[c]tion and intoxication for decades.” (Id. at ¶ 2.) 5 In the early 1980s, plaintiff Gust “developed an outpatient treatment model based on the principle 6 of addiction as [a] pathological relationship to intoxication rather than a preference [for] a 7 specific drug.” (Id. at ¶ 10.) Plaintiff Gust “has published writings, authored books and made 8 presentations regarding the ‘Gust model’ for decades.” (Id. at ¶ 11.) 9 One of plaintiff Gust’s students was Jon Daily, the founder of defendant Recovery 10 Happens Counseling Services Inc. (“RHCS”). (Id.) Daily considered plaintiff Gust “a close 11 colleague, mentor, and friend . . . .” (Id. at ¶ 17.) After Daily passed away, his wife, defendant 12 Chanter, became “the principal” of defendant RHCS. (Id. at ¶ 13.) “[A]t some point in time,” 13 defendants Sierra Health and Wellness Centers LLC and Sierra Health and Wellness Group LLC 14 (collectively, “Sierra”) “purchased or acquired . . . the assets of” defendant RHCS. (Id. at ¶ 3.) 15 Defendant RHCS “the corporate entity was dissolved” in 2020. (Id. at ¶ 4.) However, the Sierra 16 defendants are now “doing business in the name of ‘Recovery Happens’ as well as in the name 17 ‘New Start Recovery Solutions.’” (Id. at ¶ 3.) Jon Daily “located his business Recovery Happens 18 in the same building as Gust in Fair Oaks,” a suburb outside Sacramento. (Id. at ¶ 27.) 19 Plaintiffs allege that defendants engaged in false advertising through statements made on 20 Facebook and on the moving defendants’ websites regarding the Gust model, including by falsely 21 claiming that Daily created the Gust model and that defendants employ the Daily/Gust model in 22 their treatment services. (Id. at ¶¶ 12, 15.) In their FAC, plaintiffs identify four specific 23 statements made by defendants that plaintiffs assert constitute false advertising, each of which the 24 court will address in further factual detail below in resolving the pending motion to dismiss. (See 25 id. at ¶¶ 15–23.) 26 Plaintiffs allege that plaintiff Gust authored a book in 1994 entitled “Effective Outpatient 27 Treatment for Adolescents: Principles, Practices, and a Program model for Working with 28 Adolescents Experiencing Alcohol and Other Drug Related Problems” (“Gust Book”) that “is 1 registered . . . with a US Copyright number TXu000632984 / 1994-05-12.” (Id. at ¶ 36.) 2 Plaintiffs allege the following regarding three instances of copyright infringement by defendants 3 with respect to the Gust Book. First, defendants RHCS and Chanter copied treatment documents 4 from the Gust Book, including Appendices A through G, I, J, K and N, and provided these 5 treatment documents to their own clients. (Id. at ¶¶ 39, 42.) Plaintiff Gust has seen “specific 6 exact copies” of treatment documents. (Id. at ¶ 39.) Second, defendant RHCS markets and sells 7 a DVD and booklet called “‘Treating Adolescents: The Addiction to Intoxication’” “on a website 8 called the ‘Recovery Bookstore.’” (Id. at ¶ 43.) Daily, who is the “presenter” on the DVD, 9 copied Appendices D and E from the Gust Book and then used them in that recorded presentation. 10 (Id.) These copied appendices contain “the core of the intervention phase of the Gust model.” 11 (Id.) Third and finally, the Gust Book was copied in a brochure offered by the moving 12 defendants. (Id. at ¶ 44.) The brochure lists “six stages of recovery from chemical problems” 13 that are identical to those described in the Gust Book: The brochure and Gust Book each describe 14 the six stages as “Recognition, Admission, Petition, Acceptance, Volition, Conversion.” (Id.) 15 Based on the foregoing, plaintiffs assert two claims against defendants: (1) false 16 advertising in violation of 15 U.S.C. § 1125(a) (“the Lanham Act”) with respect to each of the 17 four statements plaintiffs have identified in their FAC; and (2) copyright infringement in violation 18 of 17 U.S.C. § 501 with respect to the Gust Book. (Doc. No. 24 at 1.) 19 The moving defendants filed the pending motion to dismiss on February 1, 2024. (Doc. 20 No. 25.) In moving to dismiss, defendants argue that plaintiffs have failed to sufficiently allege 21 facts to state plausible claims. (Doc. No. 25-1.) Specifically, the moving defendants argue that 22 plaintiffs have failed to plead their false advertising claim with the particularity required by 23 Federal Rule of Civil Procedure 9(b), to sufficiently allege falsity, and to sufficiently allege 24 deception and materiality, which are all required to state a cognizable claim of false advertising 25 under the Lanham Act sounding in fraud. (Id. at 7–12.) Similarly, the moving defendants argue 26 that plaintiffs have not alleged sufficient facts in support of their copyright infringement claims. 27 ///// 28 ///// 1 (Id. at 12–14.)1 Plaintiffs filed their opposition to the pending motion on February 12, 2024. 2 (Doc. No. 26.) Defendants filed their reply thereto on February 26, 2024. (Doc. No. 28.) 3 LEGAL STANDARD 4 The purpose of a motion to dismiss brought pursuant to Rule 12(b)(6) is to test the legal 5 sufficiency of the complaint. N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 6 1983). “Dismissal can be based on the lack of a cognizable legal theory or the absence of 7 sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 8 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough facts to state a claim to 9 relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A 10 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 11 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 12 Iqbal, 556 U.S. 662, 678 (2009). 13 In determining whether a complaint states a claim on which relief may be granted, the 14 court accepts as true the allegations in the complaint and construes the allegations in the light 15 most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). However, 16 the court need not assume the truth of legal conclusions cast in the form of factual allegations. 17 U.S. ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not 18

19 1 The moving defendants have also copied verbatim their argument first raised in their motion to dismiss plaintiffs’ original complaint that plaintiffs have failed to allege sufficient facts in support 20 of their request for a preliminary injunction. (Compare Doc. No. 9-1 at 9–10 with Doc. No. 25-1 at 13–14.) As was the case in their original complaint, plaintiffs have requested injunctive relief 21 only as part of their FAC’s prayer for relief. (See Doc. No. 24 at 13.) As was also the case the first time the moving defendants advanced this argument, plaintiffs have not yet filed a motion for 22 a preliminary injunction. Accordingly, once again, the argument will not be considered at this 23 time. The court further notes that the majority of the moving defendants’ arguments are copied from their prior motion to dismiss, even though the court has already addressed, and largely 24 rejected, these arguments in its prior order. The court also notes that the pending motion to dismiss is directed against plaintiffs’ entire FAC, despite the fact that several of plaintiffs’ claims 25 asserted in the FAC are identical to those asserted in plaintiffs’ original complaint, and despite the fact that the court denied the moving defendants’ prior motion to dismiss plaintiffs’ claims based 26 on identical allegations. The Eastern District of California’s overwhelming caseload has been 27 well publicized, and the long-standing lack of adequate judicial resources in this district long ago reached crisis proportions. The court urges the parties to read its prior orders before filing 28 motions and not to waste the scarce resources of this court. 1 require detailed factual allegations, “it demands more than an unadorned, the-defendant- 2 unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers 3 mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” 4 Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements 5 of a cause of action, supported by mere conclusory statements, do not suffice.”). It is 6 inappropriate to assume that the plaintiff “can prove facts that it has not alleged or that the 7 defendants have violated the . . . laws in ways that have not been alleged.” Associated Gen. 8 Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). 9 In ruling on a motion to dismiss under Rule 12(b)(6), the court is permitted to consider material 10 that is properly submitted as part of the complaint, documents that are not physically attached to 11 the complaint if their authenticity is not contested and the plaintiffs’ complaint necessarily relies 12 on them, and matters of public record. Lee v. City of Los Angeles, 250 F.3d. 668, 688–89 (9th 13 Cir. 2001). 14 ANALYSIS 15 In resolving the moving defendants’ pending motion to dismiss, the court will first address 16 plaintiffs’ false advertising claim, which is predicated on four allegedly false or misleading 17 statements. The court will then turn to plaintiffs’ copyright infringement claim, which is based on 18 three instances of alleged copyright infringement. 19 A. False Advertising Claim 20 Plaintiffs allege that the moving defendants or their agents published four distinct false 21 statements in violation of the Lanham Act, 15 U.S.C. § 1125(a). (Doc. No. 24 at ¶¶ 15–23.) 22 1. Legal Standards 23 When a plaintiff alleges that defendants have “made numerous misleading and false 24 representations” in violation of the Lanham Act and that the defendants’ “conduct was (and 25 continues to be) knowing and intentional,” the plaintiff’s claims “sound in fraud and must meet 26 the heightened pleading requirements of Rule 9(b).” TransFresh Corp. v. Ganzerla & Assoc., 27 Inc., 862 F. Supp. 2d 1009, 1017–18 (C.D. Cal. 2012); see also Vess v. Ciba-Geigy Corp. USA, 28 317 F.3d 1097, 1107 (9th Cir. 2003) (“When an entire complaint, or an entire claim within a 1 complaint, is grounded in fraud and its allegations fail to satisfy the heightened pleading 2 requirements of Rule 9(b), a district court may dismiss the complaint or claim.”) (citing Bly- 3 Magee v. Cal., 236 F.3d 1014, 1019 (9th Cir. 2001)); Gopher Media LLC v. Modern Doc Media, 4 No. 22-cv-00131-TWR-DDL, 2023 WL 350531, at *6 (S.D. Cal. Jan. 20, 2023) (“While the 5 Ninth Circuit has not decided whether the heightened pleading standard of Federal Rule of Civil 6 Procedure 9(b) applies to Lanham Act claims, the majority of district courts in this Circuit apply 7 Rule 9(b) to claims that are grounded in fraud, such as false advertising claims arising under the 8 Lanham Act.”). 9 Here, plaintiffs allege that the moving defendants “know that their representations of fact 10 are false or misleading” and that the moving defendants’ “false or misleading representations of 11 fact were done with bad faith or malice.” (Doc. No. 24 at ¶¶ 31–32.) Thus, plaintiffs’ false 12 advertising claim sounds in fraud. To survive the pending motion to dismiss their Lanham Act 13 claim, plaintiffs must therefore meet the heightened pleading requirements of Federal Rule of 14 Civil Procedure 9(b). See Fed. R. Civ. P. 9(b). 15 Under Rule 9(b), the “circumstances constituting the alleged fraud [must] be specific 16 enough to give defendants notice of the particular misconduct . . . so that they can defend against 17 the charge and not just deny that they have done anything wrong.” Kearns v. Ford Motor Co., 18 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotations omitted) (citing Bly-Magee, 236 F.3d at 19 1019). “Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily 20 constitute fraud (even if the word fraud is not used).” Id. (internal quotations omitted). To satisfy 21 the particularity standard of Rule 9(b), “a pleading must identify the who, what, when, where, and 22 how of the misconduct charged, as well as what is false or misleading about the purportedly 23 fraudulent statement, and why it is false.” Moore v. Mars Petcare US, Inc., 966 F.3d 1007, 1019 24 (9th Cir. 2020) (quotations omitted) (quoting Davidson v. Kimberley-Clark Corp., 889 F.3d 956, 25 964 (9th Cir. 2018)). 26 “To state a claim for false advertising under Section 43(a) of the Lanham Act [15 U.S.C. 27 § 1125(a)], [the plaintiff must] allege that (1) [the defendant] made a false statement of fact in a 28 commercial advertisement; (2) the statement deceived or had the tendency to deceive a substantial 1 segment of its audience; (3) the deception was material, in that it was likely to influence the 2 purchasing decision; (4) the false statement entered interstate commerce; and (5) [the plaintiff] 3 has been or is likely to be injured as a result of the false statement.” Enigma Software Grp. USA, 4 LLC v. Malwarebytes, Inc., 69 F.4th 665, 671 (9th Cir. 2023) (citing Southland Sod Farms v. 5 Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997)). “To show falsity under the Lanham Act, a 6 plaintiff must allege that ‘the statement was literally false, either on its face or by necessary 7 implication, or that the statement was literally true but likely to mislead or confuse consumers.’” 8 Id. (quoting Southland, 108 F.3d at 1139). “Statements of opinion and puffery, however, are not 9 actionable.” Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107, 1121 (9th Cir. 2021). 10 Below, the court turns to each of the four statements which serve as the basis for 11 plaintiffs’ false advertising claim in violation of the Lanham Act, 15 U.S.C. § 1125(a) and to 12 determining whether the factual allegations of plaintiffs’ FAC as to each are sufficient to satisfy 13 the heightened pleading requirements of Rule 9(b). 14 1. Statement 1 15 In their FAC, plaintiffs quote from an alleged Facebook post by defendant Chanter, acting 16 “as an employee, officer, or agent” of the moving defendants, which states: 17 We are so excited to share the news that Sierra Health and Wellness, purchased Recovery Happens. Jon Daily’s legacy will 18 continue as they will keep all of their intensive outpatient program with the name Recovery Happens and his model of care. 19 20 (Doc. No. 24 at ¶ 16.) Plaintiffs allege that this statement is false because “Jon Daily had no 21 model of care.” (Id. at ¶ 17.) Rather, plaintiffs quote a passage from “page 197 of Jon Daily’s 22 self-published book” that states “[f]or the intervention component of treatment, in our outpatient 23 services at Recovery Happens . . . my colleagues and I use a program drawn from Effective 24 Outpatient Treatment for Adolescences [sic], written by David Gust . . . . David Gust, a close 25 colleague, mentor, and friend, has used and taught this model since the mid-1980s.” Plaintiffs 26 allege that Statement 1 is also false because, regardless of whether the “model” in question is the 27 Gust model or Daily model, defendants never implemented that model after the acquisition of 28 ///// 1 defendant RHCS. (Id.)2 Finally, plaintiffs allege that defendant Chanter made this statement on 2 November 17, 2020. (Id.) 3 a. Rule 9(b) Particularity 4 Despite plaintiffs supplying the single factual allegation that the court concluded was 5 missing in its prior order, namely the “when” (see Doc. No. 19 at 7–8), the moving defendants 6 argue that plaintiffs’ allegations regarding Statement 1 lack the specificity required by Rule 9(b). 7 (Doc. No. 25 at 4.) Plaintiffs have sufficiently alleged the who (defendant Chanter, as an 8 employee, officer, or agent of the moving defendants), the what (the statement reproduced 9 verbatim in the FAC), the where (Facebook), and how the statement is false (allegedly, because 10 Daily copied plaintiff Gust’s model of care and because defendants never used that model). 11 Plaintiffs have now also alleged “when” the statement was published (November 17, 2020), 12 thereby remedying the deficiency noted by the court in its prior order (see Doc. No. 19 at 7–8). 13 Accordingly, plaintiffs have now alleged the false statement with the particularity required by 14 Rule 9(b). See Moore, 966 F.3d at 1019. 15 b. Deception and Materiality 16 The moving defendants also argue that plaintiffs have failed to sufficiently allege facts 17 supporting two elements of a Lanham Act claim—namely, deception and materiality. (Doc. 18 No. 25-1 at 10–12.) 19 A statement is deceptive if it “deceived or had the tendency to deceive a substantial 20 segment of its audience.” Enigma, 69 F.4th at 671 (quoting Southland, 108 F.3d at 1139). 21 Taking plaintiffs’ allegations as true, the reasonable inference can be drawn that Jon Daily had no 22 model of care and instead copied plaintiff Gust’s model in its entirety, and that defendants 23 thereafter did not implement the Gust/Daily model. Moreover, it can be reasonably inferred from 24 the allegations of the FAC that consumers would believe Statement 1 after reading it, i.e., a 25 consumer reading Statement 1 would have no reason to doubt that Daily did in fact have a model 26

27 2 Defendants appear to agree that they never implemented any Gust/Daily model. (See Doc. No. 25-1 at 11) (“Defendant Sierra Health and Wellness Centers did not acquire, and has never 28 implemented[,] Recovery Happens’ treatment model, whether developed by Gust or otherwise.”). 1 of care and that defendants were implementing it. It is therefore facially plausible that 2 Statement 1 has “the tendency to deceive a substantial segment of its audience.” Enigma, 69 3 F.4th at 671. 4 “A statement is material if it is ‘likely to influence the purchasing decision.’” ThermoLife 5 Int’l, LLC v. Gaspari Nutrition Inc., 648 F. App’x 609, 615 (9th Cir. 2016)3 (quoting Cook, 6 Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 244 (9th Cir. 1990)). 7 Plaintiffs allege that “the public and treatment professionals in Northern California” know of 8 Daily, that Daily was well-regarded enough in the field to write an article for “Counselor” 9 magazine in 2015, and that defendants are “align[ing] themselves with the creation of a model so 10 that they can induce clients to hire them.” (Doc. No. 24 at ¶¶ 18–20.) Moreover, plaintiffs allege 11 that defendants are located in the same building as plaintiffs in Fair Oaks, so even minor 12 perceived differences between the two practices could plausibly influence consumers’ decisions. 13 (Doc. No. 24 at ¶ 27.) These allegations are a sufficient basis upon which to plausibly assert that 14 Statement 1 is likely to influence consumers’ purchasing decisions, particularly given the nature 15 of the product—a philosophy-driven addiction treatment program in Fair Oaks—being sold. See 16 ThermoLife, 648 F. App’x at 615; (see also Doc. No. 19 at 10.) 17 Accordingly, the motion to dismiss plaintiffs’ false advertising claim brought against the 18 moving defendants arising from Statement 1 will be denied. 19 2. Statement 2 20 In their FAC, plaintiffs allege that on the websites 21 “recoveryhappenscounselingservices.com, sierrahealthwellnesscenters.com, [and] 22 newstartrecoverysolutions.com” (“the Websites”), the moving defendants state that “Sierra Health 23 and Wellness and New Start Recovery Solutions are proud . . . to offer the compassionate, 24 insightful and whole person outpatient addiction treatment philosophy founded by Jon Daily.” 25 (Doc. No. 24 at ¶¶ 15, 22.) Plaintiffs allege this statement is false because the treatment 26 philosophy the moving defendants are referencing “was not ‘founded’ by Daily; it originated with 27 3 Citation to this unpublished Ninth Circuit opinion is appropriate pursuant to Ninth Circuit 28 Rule 36-3(b). 1 David Gust.” (Id. at ¶ 22.) Moreover, plaintiffs allege, this statement is false because defendants 2 never implemented any treatment philosophy founded by either Daily or Gust. (Id.) 3 In its prior order, the court denied the moving defendants’ previous motion to dismiss 4 plaintiffs’ false advertising claim arising from Statement 2. Plaintiffs’ allegations in the FAC 5 regarding Statement 2 are identical in all relevant respects to their allegations in the original 6 complaint previously found by the court to be sufficient. (Compare Doc. No. 1 at ¶¶ 15, 29 with 7 Doc. No. 24 at ¶¶ 15, 22.) The moving defendants offer virtually the same arguments and 8 authority as in their previous motion to dismiss, and the court has rejected these arguments 9 already (see Doc. No. 19 at 8–11). The moving defendants provide no basis for the court to 10 revise its conclusions regarding Statement 2. 11 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ false advertising claim 12 arising from Statement 2 will be denied. 13 3. Statement 3 14 In their FAC, plaintiffs allege that the Websites, in a section titled “the relevance of Jon 15 Daily,” state the following: “‘ADDICTION is a PATHOLOGICAL RELATIONSHIP to 16 INTOXICATION.’” (Doc. No. 24 at ¶ 18.) However, plaintiffs allege that plaintiff Gust 17 “developed the concept of ‘addiction to intoxication’ years before Jon Daily even entered the 18 field” and that Daily had acknowledged this fact when he wrote a 2015 article in Counselor 19 Magazine that plaintiff Gust “was shifting [the industry’s] paradigm” in the 1980s by arguing that 20 “when teens are actively using, their primary relationship is to intoxication.” (Id. at ¶¶ 18–19.) 21 Plaintiffs allege this shows that Daily did not create the concept of addiction as a “pathological 22 relationship” to intoxication, and that it is “false and misleading advertisement to give Daily 23 credit for this concept.” (Id. at ¶ 18.) Additionally, plaintiffs have added the new allegation in 24 their FAC that defendants never implemented any treatment model based on the “core concept” 25 of “addiction to intoxication,” regardless of whether such a model should be attributed to Daily or 26 to plaintiff Gust. (Id.) 27 In its prior order, the court denied the moving defendants’ previous motion to dismiss 28 plaintiffs’ false advertising claim arising from Statement 3. Plaintiffs’ allegations in the FAC 1 regarding Statement 3 are identical in all relevant respects to their allegations in the original 2 complaint which were previously found to be sufficient. (Compare Doc. No. 1 at ¶¶ 18–19 with 3 Doc. No. 24 at ¶¶ 18–19.) The moving defendants offer virtually the same arguments and 4 authority as in their previous motion to dismiss, and the court has rejected these arguments 5 already (see Doc. No. 19 at 11–12). The moving defendants provide no basis for the court to 6 revise its conclusions regarding Statement 3. 7 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ false advertising claim 8 arising from Statement 3 will be denied. 9 4. Statement 4 10 Plaintiffs next allege that the Websites state Daily “believed that individuals become 11 addicted to INTOXICATION as a way of dealing with life issues. If you remove the drug—the 12 individual who is still addicted to intoxication will find another way to get high. For example, by 13 using another substance or activity such as sex or gambling.” (Doc. No. 24 at ¶ 20.) Plaintiffs 14 allege these “are all words that David Gust taught for many years” and that “[a]ttribution to Jon 15 Daily is false and misleading . . . .” (Id.) Plaintiffs also include the new allegation in their FAC 16 that defendants never implemented any Gust/Daily model (id. at ¶ 20), and as noted, defendants 17 appear to agree with plaintiffs in this regard (see Doc. No. 25-1 at 11). 18 To begin with, plaintiffs have alleged their false advertising claim arising from 19 Statement 4 with particularity, as required by Rule 9(b). They have alleged the “who” (the 20 moving defendants), the “what” (the quoted statement), the “when” (ongoing), the “where” (the 21 Websites), and the “how” (the statement is false because it attributes ideas to Daily that were in 22 fact conceived by plaintiff Gust, and because it implies that defendants are using the Gust/Daily 23 model when in fact they are not). 24 In its prior order, the court concluded that plaintiffs had failed to sufficiently allege 25 deception because they had failed to allege facts showing that defendants were attributing the 26 creation of the ideas in Statement 4 to Jon Daily. (See Doc. No. 19 at 13.) Plaintiffs reprise their 27 argument regarding misattribution in their FAC (see Doc. No. 24 at ¶ 20), and the court again 28 rejects this argument. 1 However, plaintiffs have added the new allegations in their FAC that Statement 4 is false 2 and misleading because it implies that defendants use the Daily model (which plaintiffs allege is 3 truly the Gust model), when in fact defendants have never implemented the Daily model. (See 4 Doc. No. 24 at ¶ 20.) These allegations provide a sufficient basis upon which to plausibly assert 5 that consumers reading Statement 4 would believe that defendants use the treatment model of Jon 6 Daily. Given plaintiffs’ new allegation that defendants do not do so, and in light of the moving 7 defendants’ seeming concession on this point (see Doc. No. 25-1 at 11), the court concludes that 8 plaintiffs have now sufficiently alleged deception as to Statement 4. The court also concludes 9 that plaintiffs have sufficiently alleged materiality for similar reasons as those discussed above 10 regarding Statement 1. 11 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ false advertising claim 12 arising from Statement 4 will be denied. 13 B. Copyright Infringement Claim 14 To establish a claim for copyright infringement, a plaintiff must allege and ultimately 15 prove: “(1) ownership of a valid copyright, and (2) copying of constituent elements of the work 16 that are original.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991). The 17 second element of a copyright infringement claim “contains two separate components: ‘copying’ 18 and ‘unlawful appropriation.’” Skidmore ex rel. Randy Craig Wolfe Tr. v. Led Zeppelin, 952 F.3d 19 1051, 1064 (9th Cir. 2020) (en banc). Under the first component, “a plaintiff must prove that a 20 defendant copied the work.” Id. However, in the absence of a direct copying by the defendant, 21 “the plaintiff ‘can attempt to prove it circumstantially by showing that the defendant had access to 22 the plaintiff’s work and that the two works share similarities probative of copying.’” Id. (“This 23 type of probative or striking similarity shows that the similarities between the two works are due 24 to ‘copying rather than . . . coincidence, independent creation, or prior common source.’”) 25 (citation omitted). 26 As to the second component, “the hallmark of ‘unlawful appropriation’ is that the works 27 share substantial similarities.” Id. (citation omitted). Courts in the Ninth Circuit “use a two-part 28 test to determine whether the defendant’s work is substantially similar to the plaintiff’s 1 copyrighted work.” Id. (citation omitted). This two-part test has an “extrinsic” test and an 2 “intrinsic” test, and the Ninth Circuit recently delineated the differences between the two: 3 The extrinsic test considers whether two works share a similarity of ideas and expression as measured by external, objective criteria. 4 The extrinsic test requires . . . breaking the works down into their constituent elements, and comparing those elements for proof of 5 copying as measured by substantial similarity. Because the requirement is one of substantial similarity to protected elements of 6 the copyrighted work, it is essential to distinguish between the protected and unprotected material in a plaintiff’s work. The 7 intrinsic test focuses on ‘similarity of expression from the standpoint of the ordinary reasonable observer, with no expert 8 assistance.’ 9 Gray v. Hudson, 28 F.4th 87, 96 (9th Cir. 2022) (citations omitted). However, “[o]nly the 10 extrinsic test’s application may be decided by the court as a matter of law”; district courts may 11 not apply the intrinsic test at the motion to dismiss stage. Rentmeester v. Nike, Inc., 883 F.3d 12 1111, 1117 (9th Cir. 2018), overruled on other grounds by Led Zeppelin, 952 F.3d 1051. “[I]n 13 some instances, courts have [also] found themselves unequipped to perform the extrinsic test 14 before the parties are afforded discovery.” Advanta-STAR Auto. Rsch. Corp. of America v. 15 Search Optics, LLC, 672 F. Supp. 3d 1035, 1047 (S.D. Cal. May 9, 2023). 16 The moving defendants seek dismissal of plaintiffs’ copyright infringement claim, which 17 is predicated on three separately alleged violations: (i) the copying of treatment documents 18 contained within the Gust Book; (ii) the copying of two appendices from the Gust Book that are 19 sold by defendant RHCS with a DVD that includes Daily as the presenter; and (iii) the copying of 20 the six stages of recovery from the Gust Book into a brochure given out by the moving 21 defendants. (Doc. No. 25-1 at 12–14.) Below, the court will address whether plaintiffs have 22 sufficiently alleged facts supporting their three theories of copyright infringement. 23 1. Gust Book Treatment Documents 24 In their FAC, plaintiffs allege that defendants RHCS and Chanter have copied portions of 25 the Gust Book and copied treatment documents therefrom for use with defendants’ clients. (Doc. 26 ///// 27 ///// 28 1 No. 24 at ¶ 39, 42.)4 As an initial matter, plaintiffs allege that plaintiff Gust published the Gust 2 Book in 1994, which “is registered . . . with a US Copyright number TXu000632984 / 1994-05- 3 12.” (Id. at ¶ 36.) 4 In its prior order, the court concluded that plaintiffs had failed to allege facts showing that 5 an original work produced by plaintiffs was copied by defendants. (See Doc. No. 19 at 17–18.) 6 While plaintiffs had sufficiently alleged that the moving defendants had access to plaintiffs’ 7 work, the court concluded in the prior order that plaintiffs’ allegations regarding probative 8 similarities were conclusory. (See id.) 9 Plaintiffs again allege in their FAC sufficient facts to show that defendants had access to 10 the Gust Book. (See Doc. No. 24 at ¶¶ 17, 19, 21, 22, 27.) Plaintiffs have also added new 11 allegations in their FAC that allow the court to draw the reasonable inference that the treatment 12 documents share similarities probative of copying. Specifically, plaintiffs allege that plaintiff 13 Gust has seen “exact copies” of treatment documents copied from the Gust Book that defendants 14 have provided to their clients, and that the copied treatment documents include Appendices A 15 through G, I, J, K, and N of the Gust Book. (Id. at ¶¶ 39, 42.) Plaintiffs also provide the titles of 16 these appendices. (Id. at ¶ 42.) In light of plaintiffs’ new allegations in the FAC, the court 17 concludes that the alleged copied treatment documents share similarities probative of copying. 18 Plaintiffs’ new allegations in the FAC also provide a sufficient basis upon which to allege 19 unlawful appropriation. Plaintiffs’ allegations that defendants RHCS and Chanter distributed 20 exact copies of specific appendices in the Gust Book are sufficient for the court to draw the 21 reasonable inference that the documents share substantial similarities as required by the extrinsic 22 test. See Gray, 28 F.4th at 96. 23

24 4 Plaintiffs’ allegations in the FAC are ambiguous as to whether the copyright infringement claim arising from the treatment documents is asserted against defendants RHCS and Chanter only or 25 against all defendants. In the pending motion, the moving defendants argue that the claim is asserted only against defendants RHCS and Chanter (see Doc. No. 25-1 at 13), and plaintiffs 26 appear to agree with that characterization in their reply (see Doc. No. 28 at 15) (“Clearly the First 27 Amended Complaint alleges the copying by Defendants Recovery Happens and Chanter.”). Accordingly, the court construes plaintiffs’ copyright infringement claim arising from the 28 treatment documents to be asserted only against defendants RHCS and Chanter. 1 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ copyright infringement 2 claim asserted against defendant RHCS and arising from the treatment documents will be denied. 3 2. The DVD 4 In their FAC, plaintiffs allege that defendant RHCS “markets on a website called the 5 ‘Recovery Bookstore’ (www.recoverybookstore.com) and is apparently selling a DVD and 6 booklet called ‘Treating Adolescents: The Addiction to Intoxication.’” (Doc. No. 24 at ¶ 43.) 7 Plaintiffs further allege that Jon Daily, the “presenter” of the DVD, copied Appendices D and E 8 from the Gust Book and used them in the video being sold by defendant RHCS. (Id.) Plaintiffs 9 allege that these appendices contain “the core of the intervention phase of the Gust model.” (Id.) 10 In its prior order, the court denied the moving defendants’ previous motion to dismiss 11 plaintiffs’ copyright infringement claim asserted against defendant RHCS arising from the DVD. 12 Plaintiffs’ allegations in the FAC regarding the DVD are identical in all relevant respects to their 13 allegations appearing in the original complaint and previously found by the court to be sufficient. 14 (Compare Doc. No. 1 at ¶ 54 with Doc. No. 24 at ¶ 43.) The moving defendants provide no basis 15 for the court to revise its conclusions regarding plaintiffs’ claim. 16 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ copyright infringement 17 claim asserted against defendant RHCS and arising from the DVD will be denied. 18 3. The Brochure 19 Finally, plaintiffs allege that the Gust Book describes “the six stages of recovery from 20 chemical problems . . . Recognition, Admission, Petition, Acceptance, Volition, Conversion,” and 21 that the moving defendants’ “brochure” lists an “identical six stages of recovery: ‘Recognition, 22 Admission, Petition, Acceptance, Volition, Conversion.’” (Doc. No. 24 at ¶ 44.) 23 In its prior order, the court denied the moving defendants’ previous motion to dismiss 24 plaintiffs’ copyright infringement claim arising from the brochure. Plaintiffs’ allegations in the 25 FAC regarding the brochure are identical in all relevant respects to their allegations in the original 26 complaint and which the court previously found to be sufficient. (Compare Doc. No. 1 at ¶ 55 27 with Doc. No. 24 at ¶ 44.) The moving defendants provide no basis for the court to revise its 28 conclusions regarding plaintiffs’ claim. 1 Accordingly, the moving defendants’ motion to dismiss plaintiffs’ copyright infringement 2 | claim arising from the brochure will be denied. 3 CONCLUSION 4 For the reasons explained above, 5 1. The moving defendants’ motion to dismiss (Doc. No. 25) is denied; and 6 2. Defendants Sierra Health and Wellness Centers LLC, Sierra Health and Wellness 7 Group LLC, and Recovery Happens Counseling Services Inc. shall file an answer 8 responding to plaintiffs’ first amended complaint no later than twenty-one (21) 9 days after the date of entry of this order. 10 IT IS SO ORDERED. "| pated: _ April 8, 2024 Dak A. 2, axel 12 DALE A. DROZD UNITED STATES DISTRICT JUDGE

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New Directions Program v. Sierra Health and Wellness Centers LLC, Counsel Stack Legal Research, https://law.counselstack.com/opinion/new-directions-program-v-sierra-health-and-wellness-centers-llc-caed-2024.