World Nutrition Incorporated v. Advanced Enzymes USA

• Court: District Court, D. Arizona
• Decided: November 7, 2019
• Docket: 2:19-cv-00265
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 World Nutrition Incorporated, No. CV-19-00265-PHX-GMS

10 Plaintiff, ORDER

11 v.

12 Advanced Enzymes USA, et al.,

13 Defendants. 14 15 Pending before the Court is Defendant Advanced Supplementary Technologies 16 Corp.’s (“Defendant”)1 Motion to Dismiss Plaintiff’s First Amended Complaint (Doc 35). 17 For the following reasons, the motion is denied.2 18 BACKGROUND 19 Plaintiff World Nutrition, Inc. (“Plaintiff”) is engaged in the business of selling 20 nutraceuticals, including Vitalzym, an enzyme product. Defendant is similarly engaged in 21 the manufacture and selling of enzyme products. Both Plaintiff and Defendant sell their 22 respective products in health food stores and online. Plaintiff and Defendant are direct 23 competitors. 24

25 1 Plaintiff erroneously brings this action against “AST Enzymes dba Specialty Enzymes & Biotechnologies Co., Specialty Enzymes & Probiotics, and AST Enzymes. Defendant is 26 properly named Advanced Supplementary Technologies Corp. dba AST Enzymes. 27 2 The request for oral argument is denied because the parties have had an adequate opportunity to discuss the law and evidence and oral argument will not aid the Court’s 28 decision. See Lake at Las Vegas Investors Group, Inc. v. Pac. Malibu Dev., 933 F.2d 724, 729 (9th Cir. 1991). 1 On its website, Defendant advertises that its products contain enterically coated 2 Serrapeptase—an element required for the product to be effective. Plaintiff asserts that 3 Defendant’s products do not contain the enterically coated Serrapeptase or any other 4 enterically coated blend. 5 Plaintiff brings this action asserting false advertising in violation of the Lanham Act 6 and unfair competition. Defendant moves to dismiss Plaintiff’s complaint because (1) it is 7 barred by the applicable statute of limitations; (2) it is barred by the equitable doctrine of 8 laches; and (3) it fails to meet the requisite pleading standard. Defendant also argues that 9 dismissal of the federal claim justifies dismissal of the remaining state law claim for lack 10 of subject matter jurisdiction. 11 DISCUSSION 12 I. Judicial Notice 13 In support of its Motion to Dismiss, Defendant asks the Court to take judicial notice 14 of twelve documents. The documents consist of public court documents from cases in 15 which Plaintiff was involved in this District3 and documents published on the internet and 16 retrieved by the Wayback Machine.4 All documents are offered, not to prove the truth of 17 facts contained therein, but to show Plaintiff had notice of Defendant’s alleged misconduct 18 in 2009 or earlier. 19 A district court generally will not consider evidence or documents beyond the 20 complaint in the context of a 12(b)(6) motion to dismiss. See Fed. R. Civ. P. 12(d) (“If, on 21 a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and 22 not excluded by the court, the motion must be treated as one for summary judgment under 23 3 The Plaintiff was previously sued in this district for making the same false advertisement 24 that it now accuses Defendant of making (i.e. that its products were enterically coated). Marlyn Nutraceuticals v. World Nutrition, Inc., CV 02-01876-PHX-HRH (D. Ariz. 2002). 25 The public documents proposed for judicial notice from this case include a transcript excerpt of the Marlyn plaintiff’s attorney’s (now Plaintiff’s attorney) closing argument; (2) 26 a transcript of Plaintiff’s CEO’s sworn testimony; and a motion for new trial filed by Plaintiff. Plaintiff also filed bankruptcy in this district and Defendant asks the Court to take 27 judicial notice of Plaintiff’s voluntary bankruptcy petition. 2:09-bk-23822-BMW (D. Ariz. 2009). 28 4 The Wayback Machine is a non-profit internet archive. 1 Rule 56.”). However, courts may “consider certain materials—documents attached to the 2 complaint, documents incorporated by reference in the complaint, or matters of judicial 3 notice—without converting the motion to dismiss into a motion for summary judgment.” 4 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (emphasis added). Such 5 documents may be treated as part of the complaint. Id. 6 Under Federal Rule of Evidence 201, “[t]he court may judicially notice a fact that 7 is not subject to reasonable dispute because it: (1) is generally known within the trial court’s 8 territorial jurisdiction; or (2) can be accurately and readily determined from sources whose 9 accuracy cannot reasonably be questioned.” Plaintiff claims the court documents presented 10 for judicial notice are irrelevant. Defendant was not a party to the prior actions, and the 11 documents presented do not clearly establish that Plaintiff knew or should have known of 12 Defendant’s alleged misconduct outside the limitations period. Accordingly, the Court 13 declines to take judicial notice of the court documents because they are irrelevant at this 14 stage of the proceeding. 15 With respect to the website articles, Plaintiff argues that it is inappropriate to take 16 judicial notice of website activity to establish when Plaintiff became aware of Defendant’s 17 alleged misconduct. Children’s Miracle Network v. Miracles for Kids, Inc., 8:18-cv-01227- 18 JLS-KES, 2018 WL 8243998, at *3 (C.D. Cal Dec. 6, 2018) (declining to take judicial 19 notice of the defendant’s social media activity about the defendant to prove that the plaintiff 20 should have been aware of the defendant’s alleged misconduct on a certain date). However, 21 Defendant asks the Court to take judicial notice of online articles published by Plaintiff 22 and Plaintiff’s counsel.5 The Court agrees that a defendant’s online activity being offered 23 to prove a plaintiff’s knowledge is a question of fact improper for judicial notice. Id. 24 However, it does not necessarily follow, and Plaintiff does not argue, that it is similarly 25

26 5 The Court takes judicial notice of (1) an article published by Plaintiff’s counsel regarding the Marlyn case; (2) an article published by Plaintiff in 2010 claiming that two of 27 Defendant’s products experienced significant activity loss, a common occurrence if the enzyme is not enterically coated, during Plaintiff’s independent testing of the products; and 28 content from certain websites illustrating Plaintiff’s contact information has remained consistent since 2011. 1 inappropriate to take judicial notice of a plaintiff’s own public internet activity to show that 2 the plaintiff had knowledge of certain facts at a particular time. Thus, the Court takes 3 judicial notice of plaintiff’s online articles, not for the truth of the facts contained therein, 4 but for the purpose of establishing when Plaintiff was aware, or should have been aware, 5 of Defendant’s alleged misconduct. See UL LLC v. Space Chariot, Inc., 250 F. Supp. 3d 6 596, 616 n.2 (C.D. Cal. 2017) (taking judicial notice of historic websites captured on the 7 Wayback Machine “because they can be accurately and readily determined from sources 8 whose accuracy cannot reasonably be questioned”) (internal quotations omitted). 9 II. Motion to Dismiss 10 A. Legal Standard 11 A party may move to dismiss a complaint for “failure to state claim upon which 12 relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive dismissal for failure to state a 13 claim, a complaint must contain more than a “formulaic recitation of the elements of a 14 cause of action”; it must contain factual allegations sufficient to “raise the right of relief 15 above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting 16 Conley v. Gibson, 355 U.S. 41, 47 (1957)). When analyzing a complaint for failure to state 17 a claim, “[a]ll allegations of material fact are taken as true and construed in the light most 18 favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). 19 Legal conclusions couched as factual allegations, however, are not given a presumption of 20 truthfulness, and “conclusory allegations of law and unwarranted inferences are not 21 sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 22 1998). 23 B. Analysis 24 i. Statute of Limitations 25 It is not clear in this Circuit whether a statute of limitations defense is available 26 against Lanham Act claims. See Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 27 829, 836 (9th Cir. 2002) (noting that Ninth Circuit precedent has “failed to consider 28 whether Congress intended that laches, as opposed to the statute of limitations, be the sole 1 timeliness defense available to [Lanham Act] claims” and declining to affirmatively hold 2 that the statute of limitation defense is inapplicable). Since the Jarrow decision, at least 3 one district court in this Circuit has recognized a statute of limitation defense to Lanham 4 Act claims. See Baby Trend, Inc. v. Playtex Products, LLC, 5:13–cv–647–ODW(RZx), 5 2013 WL 4039451, at *3 (C.D. Cal. Aug. 7, 2013) (applying California’s statute of 6 limitations for fraud to false advertising claims under the Lanham Act). 7 However, the Court need not decide whether the defense is available because 8 Plaintiff’s claims cannot be determined to be time barred by the statute of limitations at 9 this stage in the proceedings. A complaint cannot be dismissed on statute of limitation 10 grounds unless “the running of the statute of limitations is apparent on the face of the 11 complaint.” U.S. ex rel. Air Control Techs., Inc. v. Pre Con Indus., Inc., 720 F.3d 1174, 12 1178 (9th Cir. 2013); Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1207 (9th Cir. 13 1995) (“[A] complaint cannot be dismissed unless it appears beyond doubt that the plaintiff 14 can prove no set of facts that would establish the timeliness of the claim.”). 15 Because many Lanham Act claims allege ongoing violations, “the statute of 16 limitations is conceivably only a bar to monetary relief for the period outside of the statute 17 of limitations; the plaintiff is free to pursue monetary and equitable relief for the time 18 within the limitations period.” Jarrow, 304 F.3d at 837. In the complaint, Plaintiff alleges 19 that Defendant’s violations are ongoing. (See Doc. 1 at 6) (“[I]n connection with the sale 20 of the [Defendant’s] products, [Defendants]6 are making false and misleading 21 descriptions/statements of fact . . .”) (emphasis added). “Therefore, even if the Court 22 assumes a statute of limitations defense may bar some portion of [Plaintiff’s] claims, 23 [Plaintiff] still would be entitled to pursue damages based on activity that occurred within 24 the statute of limitations period.” Levi Strauss & Co. v. Papikian Enterprises, Inc., C 10– 25 05051 JSW, 2011 WL 3739550, at *4 (N.D. Cal. Aug. 24, 2011) (denying the defendant’s 26 motion for summary judgment on the plaintiff’s Lanham Act claims on this basis). 27

28 6 Plaintiff attributes this conduct to Defendant by listing the erroneous DBAs Plaintiff brought this action against. Supra n.1 1 Because it is not “beyond doubt that the plaintiff can prove no set of facts that would 2 establish the timeliness of the claim,” Defendant’s Motion to Dismiss on this ground is 3 denied. 4 ii. Laches 5 “Laches will generally bar a claim when the delay in filing suit is unreasonable and 6 results in prejudice to the opposing party.” League of Ariz. Cities & Towns v. Martin, 219 7 Ariz. 556, 558, 201 P.3d 517, 519 (2009) (citing Sotomayor v. Burns, 199 Ariz. 81, 83, 13 8 P.3d 1198, 1200 (2000)). “[A] claim of laches depends on a close evaluation of all the 9 particular facts in a case” and thus is rarely appropriate for resolution at the motion to 10 dismiss phase. Kourtis v. Cameron, 419 F.3d 989, 1000 (9th Cir. 2005), abrogated on other 11 grounds by Taylor v. Sturgell, 553 U.S. 880 (2008). In asserting the defense of laches at 12 this stage, “the defendant must rely exclusively upon the factual allegations set forth in the 13 complaint.” Id. 14 Here, the complaint simply does not provide sufficient factual allegations to 15 conclude that Plaintiff unreasonably delayed in filing suit or that Defendant was prejudiced 16 by this delay. For example, Defendant’s arguments of prejudice (i.e. loss of evidence due 17 to the delay, and Defendant’s inability to change the identity of its product in the minds of 18 the public) require factual determinations that are not appropriate at the motion to dismiss 19 stage. Defendant’s laches defense is premature, and its Motion to Dismiss on this ground 20 is denied. 21 iii. Rule 9(b) 22 To prove a Lanham Act false advertising claim, Plaintiff must allege “(1) a false 23 statement of fact by the defendant in a commercial advertisement about its own or another’s 24 product; (2) the statement actually deceived or has the tendency to deceive a substantial 25 segment of its audience; (3) the deception is material, in that it is likely to influence the 26 purchasing decision; (4) the defendant caused its false statement to enter interstate 27 commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false 28 statement.” Southland Sod Farms v. Stover See Co., 108 F.3d 1134, 1139 (9th Cir. 1997). 1 The parties agree that Plaintiff’s Lanham Act claim is subject to the heightened 2 pleading standard of Rule 9(b). “Rule 9(b) demands that, when averments of fraud are 3 made, the circumstances constituting the alleged fraud be specific enough to give 4 defendants notice of the particular misconduct . . . so that they can defend against the charge 5 and not just deny that they have done anything wrong.” Vess v. Ciba-Geigy Corp. USA, 6 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotations and citations omitted) (alteration 7 in original). “Averments of fraud must be accompanied by ‘the who, what, when, where, 8 and how’ of the misconduct charged.” Id. (quoting Cooper v. Pickett, 137 F.3d 616, 627 9 (9th Cir. 1997)). 10 Here, Defendant argues that Plaintiff’s allegations are insufficient to meet the Rule 11 9(b) standard because they are grounded in information and belief. “[A]llegations of fraud 12 based on information and belief usually do not satisfy the particularity requirements under 13 rule 9(b)” Moore v. Kayport Package Express, Inc, 885 F.2d 531, 540 (9th Cir. 1989). 14 “However, the rule may be relaxed as to matters within the opposing party's knowledge.” 15 Id. This is particularly true in cases of corporate fraud, where plaintiffs do not have personal 16 knowledge of all the underlying facts. Id. “In such cases, the particularity requirement may 17 be satisfied if the allegations are accompanied by a statement of the facts on which the 18 belief is founded.” Id. (internal quotations and citations omitted). 19 Plaintiff quotes many of Defendant’s advertisements proclaiming that the benefits 20 of Defendant’s products are in large part due to the enteric coated Serrapeptase. Plaintiff 21 then asserts that “[u]pon information and belief, [Defendant’s] Products do not contain 22 enterically coated Serrapeptase or any enterically coated blend.” (Doc. 1 at 6.) Plaintiff 23 identifies specific misstatements, the way the statements appeared, and the manner in 24 which the statements are false or misleading. These facts are sufficient to give Defendant 25 notice of the circumstances constituting the allegation of fraud for Defendant to defend 26 against the charge. See Semegen v. Weidner, 780 F.2d 727, 735 (9th Cir. 1985) (“[A] 27 pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud 28 so that the defendant can prepare an adequate answer from the allegations.”) (internal 1 quotations omitted). The fact that the fraud is alleged based on information and belief is 2 not dispositive. Wool v. Tandem Computers Inc., 818 F.2d 1433, 1439–40 (9th Cir. 1987) 3 (finding that the plaintiff’s complaint satisfied Rule 9(b) despite relying on “information 4 and belief” where the allegations were “precise”). 5 Defendant emphasizes the lack of allegations concerning how or when Plaintiff 6 came to know Defendant’s advertisements were false. Defendant asserts the omission is 7 “undoubtedly intentional” because Plaintiff cannot make the desired allegations without 8 “fatally time barring its claim.” (Doc. 35 at 17). However, Defendant does not cite authority 9 that requires these allegations be pled to state a valid claim under the Lanham Act. To the 10 contrary, a complaint is not required to anticipate or overcome affirmative defenses such 11 as statute of limitations or laches. See U.S. Commodity Futures Trading Commission v. 12 Monex Credit Co., 931 F.3d 966, 972 (9th Cir. 2019); see also Fed. R. Civ. P. 8(c) (listing 13 laches and statute of limitations as affirmative defenses). Plaintiff correctly notes that these 14 issues may be relevant for discovery but do not support the argument that Plaintiff’s claim 15 is not adequately alleged. Defendant’s Motion to Dismiss on this ground is denied. 16 CONCLUSION 17 Defendant has failed to show that it is beyond doubt that Plaintiff cannot adequately 18 allege the timeliness of its claims. Additionally, Plaintiff’s complaint meets the 19 requirements of Rule 9(b). As a result, Defendant’s Motion to Dismiss Plaintiff’s 20 Complaint pursuant to Rule 12(b)(6) is denied. Because the Court is not dismissing 21 Plaintiff’s federal Lanham Act claim at this time, Defendant’s Motion to Dismiss the state 22 law claim for lack of subject matter jurisdiction is also denied. 23 IT IS THEREFORE ORDERED that Defendant Advanced Supplementary 24 Technologies Corp.’s Motion to Dismiss Plaintiff’s First Amended Complaint (Doc. 35) is 25 DENIED. 26 IT IS FURTHER ORDERED directing Defendants to file an answer to the First 27 Amended Complaint within fourteen (14) days of the date of this Order. The parties’ 28 obligations to produce the information called for in the MIDP within 30 days of the filing of an answer, as set forth in paragraph (A)(6) of the General Order, will be triggered by 2|| Defendants filing of an answer. 3 Dated this 7th day of November, 2019. Wars ) ; A Whacrsay Sooo) 6 Chief United states District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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