Jerome's Furniture Warehouse v. Ashley Furniture Industries, Inc. et al, No. 3:2020cv01765 - Document 28 (S.D. Cal. 2021)

Court Description: ORDER Granting in Part and Denying in Part 21 Motion to Dismiss. The hearing set on April 23, 2021 shall be vacated. Signed by Judge Gonzalo P. Curiel on 4/9/21. (dlg)

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Jerome&#039;s Furniture Warehouse v. Ashley Furniture Industries, Inc. et al Doc. 28 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 JEROME’S FURNITURE WAREHOUSE, a California Corporation, 15 16 17 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS Plaintiff, 13 14 Case No.: 20CV1765-GPC(BGS) v. ASHLEY FURNITURE INDUSTRIES, INC., a Wisconsin Corporation; and DOES 1 through 50, inclusive, [Dkt. No. 21.] Defendant. 18 19 Before the Court is Defendant’s motion to dismiss the first amended complaint 20 pursuant to Federal Rule of Civil Procedure 9(b) and 12(b)(6). (Dkt. No. 21.) Plaintiff 21 filed an opposition. (Dkt. No. 24.) Defendant replied. (Dkt. No. 26.) Based on the 22 reasoning below, the Court GRANTS in part and DENIES in part Defendant’s motion to 23 dismiss the first amended complaint. 24 Background 25 On September 9, 2020, Plaintiff Jerome’s Furniture Warehouse (“Plaintiff”or 26 “Jerome’s”) filed a complaint against its competitor Defendant Ashley Furniture 27 Industries, Inc. (“Defendant” or “Ashley”). On January 15, 2021, the Court granted 28 Defendant’s motion to dismiss the complaint with leave to amend. (Dkt. No. 19.) On 1 20CV1765-GPC(BGS) Dockets.Justia.com 1 February 3, 2021, Plaintiff filed a first amended complaint (“FAC”) alleging 1) false 2 advertising arising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); 2) unfair 3 competition under California’s Business and Professions Code section 17200 et seq. 4 (“UCL”)’ and 3) violation of California’s False Advertising Law (“FAL”) under Business 5 and Professions Code section 17500 et seq. (Dkt. No. 20, FAC.) On February 17, 2021, 6 Defendant filed the instant motion to dismiss all causes of action in the FAC which is 7 fully briefed. (Dkt. Nos. 21, 24, 26) 8 9 Plaintiff has been selling quality furniture and home furnishings to retail customers since 1954. (Dkt. No. 20, FAC ¶ 8.) Its business model offers quality product and 10 outstanding customer service at the lowest prices possible. (Id.) It has built its brand and 11 customer goodwill through “Jerry’s price” which the consumers have come to recognize 12 as a no-haggle price where the customer can expect to purchase furniture and home 13 furnishings with confidence that the stated price reflects a fair and honest price with no 14 hidden fees or terms. (Id. ¶ 9.) 15 Defendant is also a retail seller of furniture since 1987 but in contrast to Plaintiff’s 16 no-haggle price, its business practices include false and misleading advertising intended 17 to deceive customers into falsely believing that it offers prices and financing that cannot 18 be beaten by Plaintiff or other competitors. (Id. ¶¶ 4, 10.) In fact, the State Attorney 19 General for the State of Arizona initiated an action against Ashley’s practice of using 20 false, inaccurate and/or inadequate disclaimers about the terms of its sales in 21 advertisements which resulted in a consent judgment regulating the manner in which 22 Ashely advertises. (Id. ¶¶ 11-13; id., Ex. A.) 23 Plaintiff alleges four misrepresentations in Defendant’s advertisements. First, it 24 claims that Defendant’s use of the term “PLUS” is misleading. (Id. ¶¶ 14-35.) From 25 July 28, 2020 through August 10, 2020, Defendant distributed print advertisements 26 throughout San Diego County and southern California stating “40% OFF PLUS! 60 MO. 27 NO interest NO down payment NO minimum purchase.” (Id. ¶ 14.) This is one example 28 of ads that Plaintiff routinely employs misrepresenting a percentage off in addition to 2 20CV1765-GPC(BGS) 1 interest free payments. (Id. ¶ 20.) Plaintiff avers that these advertisements mislead 2 consumers into believing that Ashley will honor 40% off its regular advertised prices for 3 all its merchandise and honor 60 months to pay off the 40% discounted purchase interest 4 free with no down payment and no minimum purchase. (Id. ¶ 15.) It is not until the 5 customer is on the sales floor and after they have selected merchandise to buy that they 6 learn that the offer is either 40% off already inflated prices or 60 months interest free 7 payments. (Id. ¶¶ 14, 18.) These ads are also misleading because the ads do not disclose 8 that most of the merchandise at the Ashley stores are excluded from the advertised sale 9 due to on site “manager’s specials” and/or other exclusions discovered once a customer 10 enters the stores. (Id. ¶ 16.) The disclaimer that the sale in the ad cannot be combined 11 with any other promotion or discount is on the second page of the ad and in microscopic 12 fine print. (Id.) 13 For days before and after December 26, 2020, Defendant also ran a large billboard 14 advertisement along the Interstate 15 freeway near the Ontario exit in Corona, California 15 promoting a “New Year 2021 Super Sale” stating “50% OFF! PLUS 36 MONTHS” with 16 no disclaimers. (Id. ¶¶ 23, 24.) This billboard is materially identical to other billboard 17 advertisements by Defendant throughout Southern California and the rest of the country. 18 (Id. ¶ 24.) The billboard ad misrepresents to the public that Ashley is offering both 50% 19 off the regular advertised purchase price of all merchandise plus 36 months interest free 20 payments. (Id.) These representations are made despite the fact it routinely refuses to 21 honor both features of the sale and many items are excluded from the offer. (Id.) 22 Defendant is aware of the effects of its misleading advertisements and this business 23 practice of misleading ads confuses and misleads consumers into its stores. (Id. ¶ 27.) 24 Kerry Lebensburger, Ashley’s Senior Vice President of Business Development, coaches 25 Defendant to engage in these misleading methods of advertising in order to confuse and 26 deceive members into patronizing its stores. (Id.) In an email to Defendant’s retail 27 chains, he wrote “80% read the headline, only 20% of those then read the content.” (Id.) 28 3 20CV1765-GPC(BGS) 1 This explains why its headlines never include the fine print and its confusing and 2 contradictory fine print is hidden at the bottom of the second page of the ads. (Id.) 3 On August 6, 2020, Plaintiff’s representatives visited Defendant’s store on 4 Miramar Road in San Diego, California to determine if it would honor its advertised 5 terms of sales within the stores. (Id. ¶ 31.) At the time, the promotion was “50% off plus 6 60 months no interest” which was in print advertisement and also on the door of 7 Defendant’s store. (Id.) While in the store, Plaintiff’s representatives noted that nearly 8 all items within Defendant’s upholstery and dining department and all “14-piece 9 packages” were already marked down with “manager’s special”; therefore, the promotion 10 was not applicable to those items. (Id. ¶ 32.) In the bedroom section, while none of the 11 items were marked down with “manager’s specials” all were marked up to roughly 12 double Plaintiff’s prices for similar pieces. (Id. ¶ 33.) On these items, the salesperson 13 represented that they could receive 40% off the already double marked up prices but 14 could not take advantage of the 60 months no interest payments. (Id.) The salesperson 15 explained that “PLUS” meant the second sales term was “another” sales option available 16 but Plaintiff’s representatives could not receive both. (Id.) 17 Second, Plaintiff claims that Defendant falsely and misleadingly advertises by 18 overstating the actual “regular price” of its merchandise in special print advertising for 19 the purpose of falsely inflating the “savings” to be realized from its “sale price.” (Id. ¶¶ 20 36-42.) For example, in Defendant’s New Years Super Sale print ad distributed 21 throughout San Diego County and valid from December 25, 2020 through January 11, 22 2021, Defendant intentionally misrepresented the “regular price” of the Ballinasloe 3- 23 piece sectional sofa as $2,299.00 and offered a sale price of $1,150.00 causing consumers 24 to perceive a savings of $1,149.00. (Id. ¶ 36.) However, the actual regular advertised 25 price for the set is $1,300.00 and can be viewed by the price listed on its website as of the 26 date of the FAC. (Id. ¶ 37.) By falsely inflating regular prices, it misrepresents discounts 27 that do not, in fact, exist and which represent a false discount under the regulations of the 28 Federal Trade Commission, 16 C.F.R. § 233.1(a) and 16 C.F.R. § 233.3. (Id. ¶ 38.) 4 20CV1765-GPC(BGS) 1 Again, in a November 24, 2020 internal communication, Mr. Lebensburger suggested to 2 stores, “Raise prices, then offer a discount if willing to wait for delivery . . . the longer 3 you wait the more you save, up to 40% off for 4 months.” (Id. ¶ 40.) This indicates that 4 Ashley is fully aware of the unfair advantage by using misleading advertisement over 5 ethical retailers. (Id.) 6 Third, Plaintiff asserts that Defendant misrepresents the quality of its merchandise 7 by falsely overstating the savings consumers can expect to receive. (Id. ¶¶ 43-44.) By 8 grossly inflating the regular price of its products, it misleads consumers into believing 9 that its goods are of higher quality than they really are. (Id. ¶ 44.) Finally, Plaintiff maintains that Defendant misleads by setting “time limits” on its 10 11 sales. (Id. ¶ 45.) By promoting its false and misleading advertisement for a “limited time 12 only” it creates a false sense of urgency as those who will respond to the ad believes they 13 need to “act fast” and visit the stores before the sale ends. (Id.) This creates foot traffic 14 to its stores through false and/or misleading statements. (Id.) Based on the examples of 15 ads presented, the real terms of the promotions seldom change at all. (Id.) 16 Defendant only reveals the truth of the misleading advertisements after a customer 17 has decided to purchase a product and by that point, they are reluctant to leave and start a 18 new search. (Id. ¶ 48.) It is well known in the industry that higher volumes of “foot 19 traffic” leads to higher sales. (Id. ¶ 49.) As a result of its false and misleading 20 advertising practices, Defendant dupes the customers but also pulls sales away from 21 Plaintiff and other honest retailers. (Id. ¶¶ 49, 50.) 22 Discussion 23 24 A. Legal Standard as to Federal Rule of Civil Procedure 12(b)(6) Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure to 25 state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal 26 under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or 27 sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police 28 Dep’t., 901 F.2d 696, 699 (9th Cir. 1990). Under Federal Rule of Civil Procedure 5 20CV1765-GPC(BGS) 1 8(a)(2), the plaintiff is required only to set forth a “short and plain statement of the claim 2 showing that the pleader is entitled to relief,” and “give the defendant fair notice of what 3 the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 4 550 U.S. 544, 555 (2007). 5 A complaint may survive a motion to dismiss only if, taking all well-pleaded 6 factual allegations as true, it contains enough facts to “state a claim to relief that is 7 plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 8 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual 9 content that allows the court to draw the reasonable inference that the defendant is liable 10 for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of 11 action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a 12 complaint to survive a motion to dismiss, the non-conclusory factual content, and 13 reasonable inferences from that content, must be plausibly suggestive of a claim entitling 14 the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) 15 (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all 16 facts alleged in the complaint, and draws all reasonable inferences in favor of the 17 plaintiff. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). 18 B. 19 Federal Rule of Civil Procedure 9(b) Courts in this district have applied Rule 9(b) to false advertising claims under the 20 Lanham Act that are grounded in fraud. See Bobbleheads.com, LLC v. Wright Bros., Inc., 21 259 F. Supp. 3d 1087, 1095 (S.D. Cal. 2017) (“As to this threshold matter, the Court 22 agrees with the weight of authority that Rule 9(b) applies to Lanham Act claims that are 23 grounded in fraud.”). Moreover, the Ninth Circuit has held that Rule 9(b) applies to 24 state-law causes of action, including the UCL and FAL. Vess v. Ciba-Geigy Corp., 25 U.S.A., 317 F.3d 1097, 1103 (9th Cir. 2003) (applying Rule 9(b) to section 17500 claim); 26 Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (applying Rule 9(b) 27 particularity requirement to UCL claim grounded in fraud). 28 6 20CV1765-GPC(BGS) 1 In federal court, where a plaintiff alleges fraud or a claim is grounded in fraud, 2 Rule 9(b) requires a plaintiff to “state with particularity the circumstances constituting 3 fraud or mistake.” Fed. R. Civ. P. 9(b). However, “[m]alice, intent, knowledge, and other 4 conditions of a person's mind may be alleged generally.” Id. A party must set forth “the 5 time, place, and specific content of the false representations as well as the identities of the 6 parties to the misrepresentation.” Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 7 2007) (internal quotation marks omitted). Allegations of fraud must be “specific enough to give defendants notice of the 8 9 particular misconduct which is alleged to constitute the fraud charged so that they can 10 defend against the charge and not just deny that they have done anything wrong.” 11 Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985); see also Cooper v. Pickett, 137 12 F.3d 616, 627 (9th Cir. 1997) (noting that particularity requires plaintiff to allege the 13 “who, what, when, where, and how” of the alleged fraudulent conduct). “Rule 9(b) 14 would clearly be superfluous if its only function were to ensure that defendants are 15 provided with that degree of notice which is already required by Rule 8(a).” In re 16 GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994) (en banc) superseded by 17 statute on other grounds, Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 18 78u–4(b)(1), as recognized in Ronconi v. Larkin, 253 F.3d 423, 429 n.6 (9th Cir. 2001). 19 In addition, the complaint must state “what is false or misleading about a statement, and 20 why it is false.” Id. at 1548. 21 C. Motion to Dismiss Complaint Under Rule 9(b) 22 Defendant moves to dismiss the FAC for failure to comply with Rule 9(b) arguing 23 Plaintiff did not cure the deficiencies the Court noted in its prior order. (Dkt. No. 21-1 at 24 8-14.1) Plaintiff responds that it has sufficiently alleged facts to put Defendant on notice 25 as to the fraud claims against it. (Dkt. No. 24 at 21-25.) 26 27 28 1 Page numbers are based on the CM/ECF pagination. 7 20CV1765-GPC(BGS) 1 Here, the FAC satisfies Rule 9(b). The FAC presents a print advertisement that 2 was distributed within San Diego County and beyond offering 40% off PLUS 60 months 3 interest free payment, no down payment and no minimum purchase that ran from July 28, 4 2020 through August 10, 2020. (Dkt. No. 20, FAC ¶ 14.) Plaintiff claims the 5 advertisement represents that Ashley will honor 40% off its regularly advertised price for 6 all of its merchandise and allow consumers 60 months to pay off their 40% discounted 7 purchase, free of interest with no down payment and no minimum purchase. (Id. ¶ 15.) 8 The advertisement is misleading because Ashley will only honor either 40% off or 60 9 months interest-free payments but not both. (Id.) Moreover, the advertisement is 10 misleading because Ashley does not disclose on the face of the ads that most of the 11 merchandise in its stores are excluded from the terms of the promotion due to other 12 promotions such as “manager’s specials” already going on in the store and this disclaimer 13 is buried in tiny fine print at the bottom of the ad. (Id. ¶¶ 16, 22.) Ashley misleads 14 consumers to believe they may receive both 40% off and 60 months of free interest in 15 order create foot traffic into their stores. (Id. ¶ 18.) Consumers are not informed about 16 the true terms of purchase until they are already in Ashley’s stores and usually after they 17 have selected their merchandise. (Id. ¶ 19.) Plaintiff alleges the ad is one of many 18 examples of misleading and false advertisement in both print advertising and on 19 Defendant’s website to confuse and deceive consumers. (Id. ¶¶ 20, 21.) The Court 20 concludes that these allegations describe the who, what, when, where, and how of the 21 alleged fraudulent conduct sufficient to put it on notice as to the allegations against it. 22 Defendant argues that the claims fail under Rule 9(b) because Plaintiff does not 23 identify a single instance where a customer was refused the combination offer or provide 24 other facts indicating that the advertisement is false or deceptive. (Dkt. No. 21-1 at 9.) 25 In its prior order, the Court dismissed the claims under Rule 9(b) because the complaint 26 alleged only that customers had frequently complained about the misleading 27 advertisements. Given that the claims of fraud were based on customer complaints, the 28 complaint did not provide the specificity required under Rule 9(b). However, the FAC 8 20CV1765-GPC(BGS) 1 does not rely on customer complaints to support its allegations of fraud but on the 2 advertisements themselves. Therefore, Defendant’s argument is not persuasive. 3 Second, Defendant contends that Plaintiff has failed to allege facts that the 4 advertisement using “PLUS” was never honored by Ashley. However, the FAC alleges 5 that when Plaintiff representatives visited Ashley stores, the sales representative told 6 them that the promotion was a choice between a percentage off or extended payments 7 without interest and they could not take advantage of both. (Dkt. No. 20, FAC ¶ 33.) 8 Therefore, Defendant’s argument is belied by this allegation. 9 Thus, the Court DENIES Defendant’s motion to dismiss the claims in the FAC for 10 failure to comply with Rule 9(b). 11 D. 12 First Cause of Action – False Advertising, 15 U.S.C. § 1125(a)(1)(B) Defendant moves to dismiss the first cause of action arguing that Plaintiff has 13 failed to allege facts to state a false advertising claim under the Lanham Act. (Dkt. No. 14 21-1 at 14-17.) Plaintiff disagrees. (Dkt. No. 24 at 25-29.) 15 Under the Lanham Act, a false advertising claim, “requires a showing that (1) the 16 defendant made a false statement either about the plaintiff’s or its own product; (2) the 17 statement was made in commercial advertisement or promotion; (3) the statement 18 actually deceived or had the tendency to deceive a substantial segment of its audience; (4) 19 the deception is material; (5) the defendant caused its false statement to enter interstate 20 commerce; and (6) the plaintiff has been or is likely to be injured as a result of the false 21 statement, either by direct diversion of sales from itself to the defendant, or by a 22 lessening of goodwill associated with the plaintiff's product.” Newcal Indus., Inc. v. Ikon 23 Office Sol., 513 F.3d 1038, 1052 (9th Cir. 2008) (quoting Jarrow Formulas, Inc. v. 24 Nutrition Now, Inc., 304 F.3d 829 (9th Cir. 2002)). “To demonstrate falsity within the 25 meaning of the Lanham Act, a plaintiff may show that the statement was literally false, 26 either on its face or by necessary implication, or that the statement was literally true but 27 likely to mislead or confuse consumers.” Southland Sod Farms v. Stover Seed Co., 108 28 F.3d 1134, 1139 (9th Cir. 1997); Tiffany Inc. v. eBay Inc., 600 F.3d 93, 112 (2d Cir. 9 20CV1765-GPC(BGS) 1 2010) (“A claim of false advertising may be based on at least one of two theories: ‘that 2 the challenged advertisement is literally false, i.e., false on its face,’ or ‘that the 3 advertisement, while not literally false, is nevertheless likely to mislead or confuse 4 consumers.’”). 5 Here, on the first factor, the FAC alleges that Defendant’s advertisements made 6 false statements about its own products. (Dkt. No. 20, FAC ¶¶ 15, 23, 29, 37.) For 7 example, the FAC claims that the advertisements promote a percentage off PLUS certain 8 months of interest free payments with no down payment and no minimum purchase; 9 however, the advertisement is false because a consumer cannot reap the benefits of both 10 benefits because Ashley will only honor a percentage off or reduced interest free 11 payments over a period of months. (Id. ¶ 15.) In addition, Ashley routinely manipulates 12 its “regular” prices by falsely inflating its regular prices to promote a perceived savings to 13 the consumer. (Id. ¶ 36.) Finally, the time limits placed on advertisements, for a “limited 14 time only” are also false or misleading because the material terms of the sale do not 15 materially change. (Id. ¶ 45.) Plaintiff has plausibly alleged that Ashley made a literally 16 false statement about the pricing of its own products. 17 On the second factor and fifth factor, without explanation, Defendant summarily 18 argues that Plaintiff fails to allege that Defendant’s “statement was made in a commercial 19 advertisement or promotion, and that the statement entered interstate commerce.” (Dkt. 20 No. 21-1 at 15.) Plaintiff opposes arguing that it alleges that the misleading ads were 21 published within interstate commerce citing to an allegation and picture in the FAC of a 22 billboard along an interstate freeway located in Corona, California. (Dkt. No. 24 at 26.) 23 Contrary to Defendant’s argument, on the second factor, the FAC alleges that 24 Defendant made numerous false statements as provided in the print advertisements as 25 well as billboard advertisements which were made in commercial advertisement or 26 promotion. (Dkt. No. 20, FAC ¶¶ 14, 15, 20 24, 25.) Next, on the fifth factor, whether 27 the false statement entered interstate commerce, neither party provides relevant legal 28 authority to support their argument. The Lanham Act reaches statements that a person 10 20CV1765-GPC(BGS) 1 “uses in commerce.” 15 U.S.C. § 1125(a)(1). The Act defines “commerce” as “all 2 commerce which may lawfully be regulated by Congress.” 15 U.S.C. § 1127. Congress 3 may regulate intrastate commerce that “substantially affects” interstate commerce. 4 United States v. Lopez, 514 U.S. 549, 559 (1995). Therefore, “the word ‘commerce’ as 5 used in the Lanham Act [also] includes intrastate commerce which affects interstate 6 commerce.” Duncan v. Stuezle, 76 F.3d 1480, 1489 n.14 (9th Cir. 1996); Stauffer v. 7 Exley, 184 F.2d 962, 966 (9th Cir. 1950) (“[a]n infringement committed in intrastate 8 commerce but affecting interstate commerce could clearly be regulated by Congress and 9 thus would be within the present [Lanham] Act.”). In sum, Lanham Act jurisdiction only 10 attaches to use of a false statement in interstate commerce, or “intrastate commerce which 11 ‘affects’ interstate commerce.” Thompson Tank & Mfg. Co. v. Thompson, 693 F.2d 991, 12 992–93 (9th Cir. 1982) (citations omitted). Moreover, communications made on public 13 websites are made in interstate commerce. See United States v. Sutcliffe, 505 F.3d 944, 14 952-53 (9th Cir. 2007) (“[T]he Internet is an instrumentality and channel of interstate 15 commerce.”) (internal citation omitted). 16 The FAC alleges the Defendant’s billboard that was placed along Interstate 15 in 17 Corona, California is materially identical to other billboards used by Ashley throughout 18 Southern California and the rest of the country. (Dkt. No. 20, FAC ¶¶ 24, 25.) 19 Defendant is in the business of selling furniture to members of the retail public within 20 Southern California and beyond. (Id. ¶ 53.) Defendant uses both print advertising and 21 advertising on its website. (Id. ¶¶ 21, 37.) Accordingly, because the FAC alleges that the 22 billboards ads are used throughout the country and Ashley uses the misleading ads on its 23 website, the FAC has alleged that Defendant caused its false statements to enter interstate 24 commerce. 25 On the third factor of whether “the statement actually deceived or had the tendency 26 to deceive a substantial segment of its audience”, Defendant argues that Plaintiff does not 27 allege any false statements made by Ashley and does not allege a single instance where a 28 11 20CV1765-GPC(BGS) 1 consumer was deceived by the advertisements described in the FAC.2 (Dkt. No. 21-1 at 2 15.) The FAC alleges that the false advertisements actually deceive or have a tendency to 3 deceive an appreciable number of relevant customers. (Dkt. No. 20, FAC ¶¶ 25, 27, 55.) 4 Moreover, when a statement is literally false, the elements of actual deception and 5 materiality are presumed. AECOM Energy & Constr., Inc. v. Ripley, 348 F. Supp. 3d 6 1038, 1056 (C.D. Cal. 2018), rev’d and remanded on other grounds by –Fed. App’x --, 7 2021 WL 1117780 (9th Cir. Mar. 24, 2021). Because Plaintiff alleged that Defendant’s 8 advertisements are literally false, the court may presume that actual deception and 9 materiality are sufficiently alleged. See Factory Direct Wholesale, LLC v. iTouchless 10 Housewares & Products, Inc., 411 F. Supp. 3d 905, 924 (N.D. Cal. 2019) (on motion to 11 dismiss because plaintiff alleged that the statement is literally false, actual deception can 12 be presumed). 13 Finally, on the sixth factor, Plaintiff has alleged it “has been or is likely to be 14 injured as a result of Ashley’s false statements.” Defendant’s only argument on this 15 factor is that Plaintiff has not plausibly alleged injury on the claim that the time limits on 16 its sales are misleading because consumers can compare Ashley’s prices against those 17 charged by Jerome’s. (Dkt. No. 21-1 at 17.) Plaintiff asserts that it has alleged it has 18 been injured by direct diversion of sales from itself to the defendant and the lessening of 19 goodwill associated with its products. (Dkt. No. 24 at 27-28.) 20 Under the Lanham Act, a false advertising claims requires a plaintiff to allege: (1) 21 an “injury to a commercial interest in sales or business reputation” (2) “proximately 22 caused by the defendant's misrepresentations.” Lexmark Int'l, Inc. v. Static Control 23 Components, Inc., 572 U.S. 118, 140 (2014). A plaintiff alleging competitive injury 24 25 26 27 28 2 Defendant also argues that email comments by Mr. Lebensburger and citation to three federal regulations cannot be used to support the third factor that the ads actually deceived or had a tendency to deceive. (Dkt. No. 21-1 at 15-16.) In response, Plaintiff argues that its allegations about Mr. Lebenburger’s email comments and the three federal regulations was not used to support the third factor. (Dkt. No. 24 at 27.) 12 20CV1765-GPC(BGS) 1 under the “false advertising” prong “need only believe that he [or she] is likely to be 2 injured in order to bring a Lanham Act claim.” TrafficSchool.com, Inc. v. Edriver Inc., 3 653 F.3d 820, 825 (9th Cir. 2011). Moreover, commercial injury is presumed “when 4 defendant and plaintiff are direct competitors and defendant's misrepresentation has a 5 tendency to mislead consumers.” Id. at 826. Here, because the FAC alleges that 6 Jeromes’s and Ashley are direct competitors and Ashley’s misrepresentation in its 7 advertisement has a tendency to mislead consumers, commercial injury is presumed. 8 Accordingly, the sixth factor has been alleged. Accordingly, the Court DENIES Defendant’s motion to dismiss the first cause of 9 10 action for false advertising under the Lanham Act. 11 E. 12 False Advertising 13 Second Cause of Action - Unfair Competition and Third Cause of Action – Defendant moves to dismiss the second and third causes of action for failing to 14 establish standing, to establish it has no adequate remedy at law and that it is entitled to 15 restitution. (Dkt. No. 21-1 at 18-23.) Plaintiff responds that it has standing to sue under 16 the UCL and FAL, it can plead alternative damages, and is entitled to restitution based on 17 its allegations. (Dkt. No. 24 at 30-36.) 18 1. Standing 19 Defendant argues that Plaintiff has failed to allege standing to sue under the UCL 20 and FAL because it failed to allege its actual reliance on the alleged false advertisements 21 rather than reliance by third parties as the Court concluded in its prior order. (Dkt. No. 22 21 at 18-19.) Plaintiff opposes contending that it has alleged its own reliance and 23 resulting damages and the reliance of consumers, whose reliance proximately, caused 24 injury to it. (Dkt. No. 17 at 29-30.) 25 The UCL and FAL claims are based on allegedly fraudulent advertisements and 26 sound in fraud. (Dkt. No. 20, FAC ¶¶ 60-79.) The UCL prohibits “any unlawful, unfair 27 or fraudulent business act or practice and unfair, deceptive, untrue or misleading 28 advertising.” Cal. Bus. & Prof. Code § 17200. The FAL prohibits “untrue or 13 20CV1765-GPC(BGS) 1 misleading” statements. Cal. Bus. & Prof. Code § 17500; Ebner v. Fresh, Inc., 838 F.3d 2 958, 967 n.2 (9th Cir. 2016) (“The FAL prohibits any unfair, deceptive, untrue, or 3 misleading advertising.”). The language of both statutes is “‘broad’ and ‘sweeping’ to 4 ‘protect both consumers and competitors by promoting fair competition in commercial 5 markets for goods and services.’” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 6 979, 985 (9th Cir. 2015) ((quoting Kwikset Corp. v. Super. Ct., 51 Cal. 4th 310, 320 7 (2011)). 8 “In 2004 . . . the voters of California passed Proposition 64, which restricts 9 standing for individuals alleging UCL and FAL claims to persons who have suffered 10 injury in fact and have lost money or property as a result of the unfair competition.” 11 Hinojos v. Kohl's Corp., 718 F.3d 1098, 1103 (9th Cir. 2013), as amended on denial of 12 reh'g and reh'g en banc (July 8, 2013) (quotations omitted). “The phrase ‘as a result of’ 13 in its plain and ordinary sense means ‘caused by’ and requires a showing of a causal 14 connection or reliance on the alleged misrepresentation.” Kwikset Corp., 51 Cal. 4th at 15 326 (citations omitted). But where a UCL claim “sounds in fraud, [the plaintiff is] 16 required to prove actual reliance on the allegedly deceptive or misleading statements, and 17 that the misrepresentation was an immediate cause of [the] injury-producing conduct.” 18 Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 793 (9th Cir. 2012) (internal 19 quotation marks omitted) (quoting Kwikset Corp. v. Superior Ct., 51 Cal. 4th 310 (2011) 20 and In re Tobacco II Cases, 46 Cal. 4th 298 (2009)). Distinct from this case, Sateriale, 21 Kwikset and In re Tobacco II Cases involved UCL and/or FAL claims brought by 22 consumer plaintiffs and not competitor plaintiffs. 23 In its prior order, the Court observed that no California state court has addressed 24 whether “competitor plaintiffs must plead their own reliance or whether pleading 25 consumer reliance is sufficient for fraudulent business practice claims brought by 26 competitors” noting a split of authority in the California district courts with a majority 27 view that a plaintiff must alleges its own reliance and not the reliance of third parties. 28 (Dkt. No. 19 at 14-15 (quoting 23andMe, Inc. v. Ancestry.com DNA, LLC, 356 F. Supp. 14 20CV1765-GPC(BGS) 1 3d 889, 911 (N.D. Cal. 2018) and citing In re Outlaw Lab., LLP, 463 F. Supp. 3d 1068, 2 1086 (S.D. Cal. 2020) (because Outlaw did not challenge standing, the Court adopted the 3 majority approach requiring reliance to be pled by the plaintiff)). In 23andMe, Inc., 4 however, because the UCL unfair prong claim did not sound in fraud, the court held that 5 the actual reliance requirement did not apply. 23andMe, Inc., 356 F. Supp. 3d at 910-11. 6 After a careful review of the recent caselaw and the California legislative’s intent 7 that the substantive reach of the claims under UCL and FAL be “expansive”, Kwikset 8 Corp., 51 Cal. 4th at 320, the Court adopts the minority view that a competitor may 9 allege false advertising claims under the UCL and FAL without alleging its own reliance 10 and need only allege it suffered an injury, loss of money or property, as a result of the 11 alleged misrepresentations. See Allergan USA Inc. v. Imprimis Pharms, Inc., Case No. 12 SA CV 17-1551-DOC (JDEx), 2017 WL 10526121, at *13 (C.D. Cal. Nov. 14, 2017) 13 (declining to extend reasoning in Kwikset on UCL false advertising claim requiring 14 plaintiff to plead its own reliance because it involved consumer claims and not 15 competitor claims); Lona's Lil Eats, LLC v. DoorDash, Inc., No. 20-cv-06703-TSH, 2021 16 WL 151978, at *10 (N.D. Cal. Jan. 18, 2021) (“A non-consumer plaintiff can allege false 17 advertising claims under the UCL and FAL without alleging its own reliance, as long as 18 the plaintiff has alleged a sufficient causal connection.”); Simpson Strong-Tie Co. Inc. v. 19 MiTek Inc., Case No. 20-cv-06957-VKD, 2021 WL 1253803, at *6 (N.D. Cal. Apr. 5, 20 2021). 21 In Allergan USA, the district court explained that consumer claims and competitor 22 claims are fundamentally distinct and to apply the actual reliance requirement on 23 competitors “makes little sense.” Allergan USA Inc., 2017 WL 10526121, at *13. 24 “Competitor plaintiffs are concerned with the loss of sales and market share as a result of 25 the deceptive activity. In contrast, consumer plaintiffs are concerned with the deceptive 26 activity itself and suffer a wholly different type of harm from competitors—getting 27 hoodwinked into purchasing a product or service. It is hard to imagine a scenario, 28 though, in which a competitor plaintiff would rely on a competitor defendant's misleading 15 20CV1765-GPC(BGS) 1 advertisements and suffer injury. After all, situations in which a company would 2 purchase its competitor's products are few and far between. A company may purchase its 3 competitor's products to conduct market research or, where the competitor's products are 4 unprotected by intellectual property law, in an attempt to reverse engineer a particular 5 feature. . . . Thus, imposing the reliance requirement on competitor claims would impose 6 a superficial hurdle on competitor plaintiffs seeking to stop or recover for damages 7 caused by their competitor's false advertising. Kwikset does not appear to go so far.” Id. 8 9 Because the UCL and FAL protect both “consumers and competitors”, Kwikset Corp., 51 Cal. 4th at 320, requiring a competitor to allege and then demonstrate its own 10 reliance on a competitor defendant’s fraudulent conduct, an uncommon occurrence, 11 would render the protections afforded under the UCL and FAL to competitors 12 meaningless. The Court finds the reasoning in Allergan USA persuasive and concludes 13 that a competitor plaintiff need not allege actual reliance on the defendant’s alleged 14 fraudulent statements. Instead, Plaintiff need only allege that it lost money or property as 15 a result of the alleged misrepresentations. See Kwikset Corp., 51 Cal. 4th at 326. Here, 16 Plaintiff alleges it lost money or property, such as lost sales and damage to its goodwill 17 with former, existing and potential customers, caused by Defendant’s alleged misleading 18 advertisements. (Dkt. No. 20, FAC ¶¶ 68, 75.) These allegations satisfy the standing 19 requirements under the UCL and FAL. Thus, the Court DENIES Defendant’s motion to 20 dismiss the second and third causes of action for lack of standing. 21 2. No Adequate Remedy at Law 22 Citing to Sonner v. Premier Nutrition Corp., 971 F.3d 834, 844 (9th Cir. 2020), 23 Defendant moves to dismiss the UCL and CLRA claims because Plaintiff has not alleged 24 that it lacks an adequate remedy at law and, in fact, the FAC alleges that that damages are 25 ascertainable. (Dkt. No. 21-1 at 20.) In opposition, Plaintiff argues that on injunctive 26 relief, it has alleged its inability to readily ascertain money damages and that Sonner is 27 distinguishable based on its unique procedural posture because damages claim was 28 16 20CV1765-GPC(BGS) 1 voluntarily dismissed on the eve of trial. (Dkt. No. 24 at 35.) Plaintiff does not appear to 2 challenge the restitution argument brought by Defendant. 3 The FAC seeks restitution and injunctive relief. (Dkt. No. 20, FAC ¶¶ 70- 72, 78- 4 79.) In Sonner, the Ninth Circuit, relying on United States Supreme Court precedent, 5 held that “traditional principles governing equitable remedies in federal courts, including 6 the requisite inadequacy of legal remedies, apply when a party requests restitution under 7 the UCL and CLRA in a diversity action.” Sonner v. Premier Nutrition Corp., 971 F.3d 8 834, 844 (9th Cir. 2020). In line with this, the court held that a plaintiff must allege that 9 she “lacks an adequate remedy at law before securing equitable restitution for past harm 10 under the UCL and CLRA.” Id. (citations omitted); see also Anderson v. Apple Inc., -- 11 F. Supp. 3d --, 2020 WL 6710101, at *7 (N.D. Cal. Nov. 16, 2020 (“the plaintiffs have 12 not pleaded inadequate remedies at law to begin with”). Pointing out that the operative 13 complaint did not allege that Sonner lacked an adequate legal remedy and the equitable 14 restitution she sought was the same as damages she sought to compensate for same past 15 harm, the Ninth Circuit affirmed dismissal of the equitable restitution claim under the 16 UCL and CLRA. Sonner, 971 F.3d at 844 (citing O'Shea v. Littleton, 414 U.S. 488, 502 17 (1974) (holding that a complaint seeking equitable relief failed because it did not plead 18 “the basic requisites of the issuance of equitable relief” including “the inadequacy of 19 remedies at law”)). 20 While Sonner’s holding was limited to the equitable relief of restitution, Sonner, 21 971 F.3d at 842 (noting that “injunctive relief [was] not at issue”), district courts have 22 held that the “adequate remedy at law” requirement applies to equitable relief, which 23 includes injunctive relief claims. See Audrey Heredia v. Sunrise Senior Living LLC, Case 24 No. 8:18-cv-01974-JLS-JDE, 2021 WL 819159, at *4 (C.D. Cal. Feb. 10, 2021) 25 (inadequate remedy at law applies to all claims for equitable relief) (citing 26 IntegrityMessageBoards.com v. Facebook, Inc., No. 18-CV-05286-PJH, 2020 WL 27 6544411, at *5 (N.D. Cal. Nov. 6, 2020) (“Whatever the facts before the panel in Sonner, 28 17 20CV1765-GPC(BGS) 1 the Supreme Court in York3 did not draw any distinction among the various forms of 2 equitable relief when requiring the absence of a ‘plain, adequate, and complete remedy at 3 law’ to obtain it.”); see also Huynh v. Quora, Inc., No. 5:18-CV-07597-BLF, 2020 WL 4 7495097, at *19 (N.D. Cal. Dec. 21, 2020) (“Cases in this Circuit have held that Sonner 5 extends to claims for injunctive relief.”) (collecting cases); In re MacBook Keyboard 6 Litig., No. 5:18CV2813-EJD, 2020 WL 6047253, at *3 (N.D. Cal. Oct. 13, 2020) 7 (“[N]umerous courts in this circuit have applied Sonner to injunctive relief claims.”)). 8 District courts have also rejected Plaintiff’s attempt to distinguish Sonner based on 9 the procedural posture of the case. See Teresa Adams v. Cole Haan, LLC, Case No. Sacv 10 20-913 JVS (DFMx), 2020 WL 5648605, at *2 (C.D. Cal. Sept. 3, 2020) (procedural 11 posture in Sonner did not affect analysis of the traditional division between law and 12 equity); Zaback v. Kellogg Sales Co., No. 20-00268 BEN MSB, 2020 WL 6381987, at *4 13 (S.D. Cal. Oct. 29, 2020) (collecting cases that have “applied Sonner to dismiss 14 complaints in cases involving similar claims at the more familiar early stages of 15 litigation”). 16 In response, Plaintiff argues it has alleged that legal remedies are not adequate on 17 the claim for injunctive relief because of the inability to ascertain the amount of future 18 damages from Ashley’s continued, future misconduct. (Dkt. No. 24 at 35.) 19 In Ketayi v. Health Enrollment Grp., -- F. Supp. 3d --, 2021 WL 347687, at *20 n. 20 16 (S.D. Cal. 2021), this Court found that the plaintiffs plausibly alleged there was no 21 adequate remedy at law for the injunctive relief they sought to end the defendants’ 22 business practices because the plaintiffs sought “an order preventing Defendants from 23 using the allegedly fraudulent or unlawful business practices in the future, or in other 24 words, from causing future harm for which damages are not calculable.” Id. (citing 25 IntegrityMessageBoards.com v. Facebook, Inc., No. 18-CV-05286-PJH, 2020 WL 26 27 28 3 Guaranty Trust Co. of New York v. York, 326 U.S. 99 (1945). 18 20CV1765-GPC(BGS) 1 6544411, at *7 (N.D. Cal. Nov. 6, 2020) (holding that plaintiffs had adequately alleged 2 they lacked an adequate remedy at law for future harm sought to be remedied by 3 injunctive relief). Similarly, in this case, Plaintiff alleges that the amount of damages 4 suffered by it will be difficult to ascertain if the fraudulent acts continue without 5 injunctive relief, and thus, it has no adequate remedy at law. (Dkt. No. 20, FAC ¶ 70.) 6 Therefore, the Court concludes that Plaintiff has plausibly alleged that it does not have an 7 adequate remedy at law for injunctive relief and DENIES Defendant’s motion to dismiss 8 the injunctive relief claim. Because Plaintiff does not oppose or argue that it has no 9 adequate remedy at law for the restitution claim, the Court GRANTS Defendant’s motion 10 to dismiss the equitable claim for restitution as unopposed. Even though the Court grants 11 dismissal of the restitution claim under Sonner, it also considers Defendant’s alternative 12 argument on why dismissal of the restitution claim is warranted. 13 3. 14 Defendant further argues that Plaintiff has not alleged any facts that it is entitled to 15 restitution under the UCL or FAL because it has no direct or vested ownership interest in 16 the diverted profits from Plaintiff to Defendant. (Dkt. No. 21-1 at 21-22.) Plaintiff 17 claims it has alleged that Defendant’s false and misleading advertisements have diverted 18 its customers to Ashley and Plaintiff should be entitled to profits it would have earned 19 from those customers that were diverted to Defendant’s stores. (Dkt. No. 24 at 36.) 20 Restitution The FAC seeks restitution. (Dkt. No. 20, FAC ¶¶ 72, 79.) “The object of 21 restitution is to restore the status quo by returning to the plaintiff funds in which he or she 22 has an ownership interest.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 23 1134, 1149, (2003). In Korea Supply, the California Supreme Court announced two 24 theories to support a claim for restitution: first, the court looks at whether the plaintiff is 25 seeking the return of money or property that was once in its possession. Id. Second, the 26 court considers whether the plaintiff has a “vested interest in the money it seeks to 27 recover.” Id. A “vested” interest is one that is “unconditional,” “absolute,” and “not 28 contingent.” Nat’l Rural Telecomms Co-op. v. DIRECTV, Inc., 319 F. Supp. 2d 1059, 19 20CV1765-GPC(BGS) 1 1080 (C.D. Cal. 2003) (citing Black’s Law Dictionary). “Compensation for a lost 2 business opportunity is a measure of damages and not restitution to the alleged victims.” 3 Id. at 1151 (quoting MAI Sys. Corp. v. UIPS 856 F. Supp. 538, 542 (N.D. Cal. 1994)). 4 Here, Plaintiff claims it is not seeking restitution in the form of disgorgement of 5 Defendant’s profits but instead, the loss of Plaintiff’s profits due to the diversion of its 6 customers to Defendant’s stores due to the misleading advertisements. (Dkt. No. 24 at 7 36.) In Korea Supply, the court rejected a similar argument. In essence, Plaintiff’s claim 8 for lost profits from its customers is essentially a measure of damages for the tort of 9 interference with prospective economic advantage, and not restitution under the UCL. 10 See Korea Supply, 29 Cal. 4th at 1151 (rejecting plaintiff’s theory of damages not seeking 11 disgorgement of all defendant’s profits but seeking the amount it allegedly would have 12 obtained as a commission it been awarded the contract); see also Tortilla Factory, LLC v 13 Better Booch, LLC, Case No. 2:18-cv-02980-CAS(SKx), 2018 WL 4378700, at *10 14 (C.D. Cal. Sept. 13, 2018) (dismissing restitution damages as it was based diverted profits 15 to the defendant and did not demonstrate plaintiff was once in “possession of property 16 wrongfully acquired by [the defendant], or that it had a vested interest in [the 17 defendant’s] allegedly wrongfully obtained profits.”). Because Plaintiff has not alleged it 18 is entitled to restitution, the Court GRANTS Defendant’s motion to dismiss the 19 restitution claim. 20 Conclusion 21 Based on the reasoning above, the Court GRANT in part and DENIES in part 22 Defendant’s motion to dismiss. The Court DENIES Defendant’s motion to dismiss the 23 three causes of action in the FAC and GRANTS Defendant’s motion to dismiss the claim 24 /// 25 /// 26 /// 27 /// 28 20 20CV1765-GPC(BGS) 1 for restitution in the second and third causes of action. The hearing set on April 23, 2021 2 shall be vacated. 3 4 IT IS SO ORDERED. Dated: April 19, 2021 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 20CV1765-GPC(BGS)

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