American Bullion, Inc. v. Regal Assets, LLC et al, No. 2:2014cv01873 - Document 154 (C.D. Cal. 2014)
Court Description: ORDER GRANTING PLAINTIFFS MOTION FOR PRELIMINARY INJUNCTION 47 .: An injunction shall issue by separate order of this court In the event Regal modifies its Affiliate Agreement or otherwise establishes a new, non-controlling relationship with its current agents, the court will consider modifying the terms of the accompanying preliminary injunction by Judge Dean D. Pregerson. (lc). Modified on 11/17/2014 .(lc).
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American Bullion, Inc. v. Regal Assets, LLC et al Doc. 154 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 AMERICAN BULLION, INC., 12 Plaintiff, 13 14 15 16 v. REGAL ASSETS, LLC; TYLER GALLAGHER, AN INDIVIDUAL; KELLY FELIZ, AN INDIVIDUAL, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 14-01873 DDP (ASx) ORDER GRANTING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION [Dkt. 47] 17 Presently before the court is Plaintiff American Bullion Inc. 18 19 (“American Bullion”)’s Motion for Preliminary Injunction. Having 20 considered the submissions of the parties and heard oral argument, 21 the court grants the motion and adopts the following order. 22 I. Background 23 American Bullion and Defendant Regal Assets, LLC (“Regal”) are 24 business competitors in the field of adding gold and other precious 25 metals to individual retirement accounts.1 26 They also convert existing retirement accounts into precious (Complaint ¶¶ 1,17.) 27 28 1 Defendant Gallagher is alleged to be Regal’s Chief Executive Officer, owner, and/or alter ego. (Compl. ¶¶ 10, 12.) Dockets.Justia.com 1 metals. 2 word of mouth, but also by promoting itself online. 3 (Id.) American Bullion generates business by relying on (Id. ¶ 17.) Regal advertises its services online via third-party 4 affiliates, who are paid for referred business. 5 23.) 6 (collectively, “Defendants”) have created and are operating several 7 such affiliate websites. (Compl. ¶ 26.) 8 operated by Defendants purport to contain independent consumer 9 reviews, Plaintiff contends that, in reality, Defendants provide (Compl. ¶¶ 20, Plaintiff alleges that Defendants Regal and Gallagher Although the websites 10 content to the affiliates and use affiliate websites to falsely 11 advertise Regal and to disparage Plaintiff. 12 Plaintiff alleges that the websites are in no way independent, and 13 that Defendants do not publicly disclose their connection to the 14 websites. 15 (Comp. ¶ 23.) (Compl. ¶ 25.) Reviews on the websites praise Defendants, give negative 16 reviews about Plaintiff’s services, and disseminate false 17 statements about Plaintiff. 18 websites, for example, claim that Plaintiff was a defendant in a 19 lawsuit accusing it of fraud, and that Plaintiff was found guilty 20 and later sued by the U.S. Commodities Futures Trading Commission. 21 (Compl. ¶ 37; Ex. 4.) 22 that a business with a similar name, American Bullion Exchange, was 23 in fact the party found guilty in that action. (Compl. ¶ 38.) 24 (Compl. ¶ 45.) Some of the affiliate Plaintiff contends that this is false, and Many of the websites also allegedly use Plaintiff’s name to 25 misdirect potential customers. 26 that the websites urge customers to “click here to visit American 27 Bullion,” but are then linked to Regal’s website instead of to 28 American Bullion. (Compl. ¶ 40.) Plaintiff asserts (Id.) Plaintiff further alleges that it 2 1 requested Defendants remove the materials and stop the 2 dissemination of false information, to no avail. 3 (Compl. ¶ 41.) The Complaint alleges causes of action for false and 4 misleading advertising under the Lanham Act, 15 U.S.C. 1125(a), and 5 state law, as well as state law causes of action for unfair 6 competition, unfair business practices, trade libel, defamation, 7 and intentional interference with prospective economic advantage. 8 Plaintiffs now move for a preliminary injunction compelling 9 Defendants to remove the offending online content, post statements 10 describing the inaccuracies of the removed content, suspend 11 payments to any affiliates continuing to display the alleged 12 mispresentations, and make certain disclosures to new customers 13 referred to Regal through the affiliate marketing program. 14 II. 15 Legal Standard A private party seeking a preliminary injunction must show 16 that: (i) it is likely to succeed on the merits; (ii) it will 17 suffer irreparable harm in the absence of preliminary relief; (iii) 18 the balancing of the hardships and equities between the parties 19 that would result from the issuance or denial of the injunction 20 tips in its favor; and (iv) an injunction will be in the public 21 interest. 22 (2008). 23 shows a combination of probable success on the merits and the 24 possibility of irreparable harm; or (ii) raises serious questions 25 on such matters and shows that the balance of hardships tips in 26 favor of an injunction. 27 Inc., 819 F.2d 935, 937 (9th Cir. 1987). “These two formulations 28 represent two points on a sliding scale in which the required Winter v. Natural Res. Defense Counsel, 555 U.S. 7, 20 Preliminary relief may be warranted where a party: (i) See Arcamuzi v. Continental Air Lines, 3 1 degree of irreparable harm increases as the probability of success 2 decreases.” 3 demonstrate a “fair chance of success on the merits” and a 4 “significant threat of irreparable injury” absent the issuance of 5 the requested injunctive relief.2 6 III. Discussion Id. Under both formulations, the party must Id. 7 A. 8 Defendants argue that American Bullion cannot demonstrate a 9 Likelihood of Success on the Merits likelihood of success on the merits because neither Regal nor 10 Gallagher is responsible for the offending content on the Regal 11 affiliate websites. 12 (Opposition at 7-11.) Under Regal’s Affiliate Program Agreement (“the Affiliate 13 Agreement” or “Agreement”), affiliates, who are ostensibly 14 independent contractors, receive commissions for generating leads 15 for Regal and for facilitating transactions on Regal’s site. 16 (Affiliate Agreement, Declaration of Aaron Wais in Support of 17 Motion, Ex. 1 at 3, 4-5, 11.) 18 to, among other things: Affiliates, in turn, are required 19 • “Promote” Regal (Agreement ¶ 7); 20 • “[P]lace dedicated and relevant content on [the 21 affiliate’s] sites or offers directing users to the lead 22 capture form or dedicated links provided [by Regal] 23 (Agreement ¶ 7(b));3 and 24 2 25 26 27 28 Even under the “serious interests” sliding scale test, a plaintiff must satisfy the four Winter factors and demonstrate “that there is a likelihood of irreparable injury and that the injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). 3 Regal provides affiliates with approved content, including forms, links, banners, “swipe files,” marketing materials, “and (continued...) 4 1 • “[C]onsent[] to [Regal] monitoring the Affiliate’s sites 2 or offers to determine continued compliance . . . .” 3 (Agreement ¶ 7(e).) 4 The Affiliate Agreement also places numerous restrictions upon 5 affiliates. 6 • 7 8 Some of these provisions state that: Affiliates may not perform similar services for any of Regal’s competitors (Agreement ¶ 20(c)); • 9 Upon termination of the Agreement by either party, affiliates “may NOT conduct any business or services 10 directly or indirectly related to the sales of precious 11 metals” for a period of five years (Agreement ¶ 20(c)); 12 • Affiliates may not display “content that is not 13 acceptable to [Regal] or inconsistent with the image that 14 [Regal] wishes to create . . . .” 15 • (Agreement ¶ 4); Regal retains “absolute discretion” to terminate 16 affiliates from the program at will, “for any reason 17 whatsoever.” 18 • (Id.); and Affiliates must immediately forfeit all commissions 19 generated upon suspension or termination from the 20 program. (Agreement ¶ 1.) 21 In support of Regal’s contention that it is not responsible 22 for content on affiliate sites, Defendant Gallagher states that 23 Regal affiliates are independent contractors, and that neither he 24 nor Regal owns or controls affiliates. 25 Gallagher ¶ 11.) 26 provide any review content to affiliates, most of whom disclose (Declaration of Tyler Gallagher further declares that Regal does not 27 3 28 (...continued) other advertising material.” (Agreement ¶ 7(c).) 5 1 that they are independently owned and receive compensation from the 2 companies they review and recommend. 3 Gallagher, Regal polices its affiliates closely, and forbids them 4 to use aliases or fake photographs. 5 Gallagher also states that, despite the clear language limiting 6 affiliates’ dealings in the precious metals industry, affiliates 7 are free to send leads to Regal’s competitors. 8 11.) 9 (Id. ¶¶ 14-15.) According to (Id. ¶¶ 20, 39, 44-45, 49.) (Gallagher Decl. ¶ Gallagher also denies that Regal provides any of the 10 purportedly independent content displayed on affiliate websites. 11 (Gallagher Decl. ¶ 29.) 12 provides: (1) a “cookied” version of the Regal site, essentially a 13 clone of the Regal site with the affiliate’s specific telephone 14 number and a number identifying the particular affiliate to Regal; 15 (2) a “lead capture form,” (3) banners and text ads, (4) e-mail 16 templates known as “swipe files,” (5) images and videos, and (6) 17 charts.4 Gallagher asserts that Regal only (Id. ¶¶ 30-37.) 18 “A principal is liable for his agent's negligence ‘in the 19 transaction of the business of the agency,’ . . . or where the 20 principal has authorized or ratified the agent’s conduct.” Ogala v. 21 Chevron Corp., No. 14-cv-173-SC, 2014 WL 2089901 *3 (N.D. Cal. May 22 19, 2014) (citing Cal Civ. Code §§ 2338, 2339). 23 who acts on the principal’s behalf and subject to the principal’s 24 control. 25 the agent must manifest assent to the principal’s right to control “An agent is one To form an agency relationship, both the principal and 26 27 28 4 Several of the exhibits described in Gallagher’s declaration, including Exhibits M, N, P, and Q, are either mislabeled or not attached to the declaration. 6 1 the agent.” 2 2010) (internal alteration, quotation marks, and citation omitted). 3 “Actual control is not necessary[;] as long as there is an 4 agreement that the principal has the right to control the agent, an 5 agency relationship exists.” 6 Daniels-Midland Co., No. CV 11-3473, 2012 WL 3101659 * 5 (C.D. Cal. 7 Jul. 31, 2012). 8 9 United States v. Bonds, 608 F.3d 495, 506 (9th Cir. Western Sugar Co-op v. Archer- As an initial matter, the terms “independent contractor” and “agent” are not mutually exclusive. An independent contractor may 10 also be an agent. 11 substance of the parties’ relationship, not the label they give it, 12 determines the existence of agency.” 13 Inc., No. CV-05-457 TUC, 2007 WL 686678 at * 13 (D. Ariz. Mar. 2, 14 2007); See also Parallel Synthesis Techs., Inc. v. DeRisi, No. 15 5:13-cv-05968-PSG, 2014 WL 4748611 at *4 (N.D. Cal. Sept. 23, 16 2014). 17 corresponding statement that affiliates are independent contractors 18 are therefore of no moment. 19 Bonds, 608 F.3d at 505. In addition, “[t]he United States v. Cyberheat, The Affiliate Agreement’s pronouncement and Gallagher’s Furthermore, Plaintiff points to a host of evidence that 20 appears to contradict Gallagher’s sworn statements. 21 Gallagher declares that Regal does not provide any review content 22 to affiliates, an alleged “Regal Affiliate recruitment site”5 23 includes a template for reviews of American Bullion, which conclude 24 with language recommending that viewers use Regal instead. 25 Declaration of James Berkley (Dkt. 132), Ex. 124 at 3. P.168=70) 26 27 28 5 www.trustgoldira.com. 7 Though (Third 1 Further, and contrary to Gallagher’s assertion that Regal only 2 provides a narrow, limited set of content to affiliates, Regal’s 3 official affiliate recruitment page, regalgoldaffiliates.com, 4 offered to create an entire, custom “Done for You” site for 5 affiliates, including themes, plugins, and original content. 6 (Berkley Decl. III, Ex. 85 at 2.) 7 admittedly provided by Gallagher to affiliates has also appeared on 8 web sites as recently as September 14, 2014, and includes false 9 narratives, such as that the purported author, who in reality is a 10 made-up persona, is “happy to tell you that after countless months 11 of research, I have found the most reputable company . . . . 12 have worked with them personally, and couldn’t be more pleased . . 13 . . 14 105; Gallagher Decl., Ex. O.) 15 that Regal polices its affiliates, websites touting Regal and 16 purporting to be authored by industry experts, such as the 17 aforementioned, entirely fictitious “Reeves Jameson,” remain 18 active. 19 The “swipe file” content I urge you to get in contact with Regal Assets.” . I (Id., Ex. Notwithstanding Gallagher’s claim (E.g., Berkley Decl. III, Ex. 88.) Plaintiff has demonstrated a likelihood of success on the 20 merits. 21 violations, at the very least, have occurred. 22 seek to foist responsibility for those violations upon Regal 23 affiliates, the record before the court indicates that those 24 affiliates are Defendants’ agents. 25 regarding affiliates’ independence are belied by other evidence. 26 Most significantly, the Affiliate Agreement grants Regal nearly 27 complete control over its affiliates. 28 authority over affiliates’ website content, much of which is There appears to be little dispute that Lanham Act 8 While Defendants Gallagher’s assertions Regal enjoys unbridled 1 provided by Regal itself. All affiliate content must conform to 2 the “image” that Regal wishes to create and be otherwise acceptable 3 to Regal. 4 consequences for affiliates who, because they are barred from doing 5 any other business in the precious metals field, depend entirely 6 upon Regal for their income in the precious metals industry. 7 Affiliates’ need to stay in Regal’s good graces is intensified by 8 the post-agreement five-year ban on affiliates’ business in the 9 industry, which further solidifies Regal’s control. Failure to hew to Regal’s strictures carries significant Under such 10 circumstances, Regal affiliates can hardly be characterized as 11 truly independent. 12 shills for Regal, obligated to generate leads and sales for Regal 13 by regurgitating Regal-generated content and toeing the party line, 14 at pain of excommunication from the entire field. 15 the Affiliate Agreement, both Regal and its affiliates 16 unequivocally manifested assent to Regal’s control. 17 Regal, as master to its servant affiliates, is responsible for 18 their actions. 19 20 21 B. Rather, affiliates are essentially captive By entering into Accordingly, Remaining Factors 1. Irreparable Harm Regal contends that American Bullion has failed to demonstrate 22 a likelihood of irreparable harm because (1) customers’ stated 23 preferences for Regal over American Bullion are insufficient to 24 establish harm and (2) the allegedly wrongful conduct has ceased. 25 It is well established that damage to goodwill or loss of control 26 over business reputation can constitute irreparable harm. 27 Reed Enters., LLC v. Florida Entm’t Mgmt., Inc., 736 F.3d 1239, 28 1250 (9th Cir. 2013). Herb As Regal itself acknowledges, American 9 1 Bullion has provided evidence of lost sales. 2 received feedback from at least twenty-four consumers who chose not 3 do business with American Bullion, but did provide feedback as to 4 why they avoided American Bullion’s Services. 5 Richard Warren in Support of Motion, ¶ 12.) 6 nearly all opted to deal with Regal instead. 7 consumers highlighted reviews touting Regal, bad reviews of 8 American Bullion, and references to nonparty American Bullion 9 Exchange as motivating forces behind their decisions to use Regal 10 11 rather than American Bullion. American Bullion (Declaration of Of those consumers, (Id.) Several (Id.) Regal’s contention that these testimonials are not numerous 12 enough to establish a likelihood of irreparable harm is not 13 persuasive. 14 that wrongful acts have ceased. 15 originating in Regal’s “swipe files” continue to appear online, as 16 does content purportedly authored and promulgated by the entirely 17 fictitious “Reeves Jameson” persona utilized by Regal’s agents. 18 American Bullion has therefore demonstrated a likelihood of 19 continuing irreparable harm. 20 21 2. Nor, as discussed above, does it appear to the court False narratives apparently Balance of Equities and the Public Interest This court must consider the effect on both parties of 22 granting or withholding the requested relief and pay “particular 23 regard” to the public’s interest. 24 court acknowledges that American Bullion seeks a wide-ranging 25 injunction. 26 however, does not unduly burden Regal. 27 that its affiliates are independent contractors, not employees. 28 That argument is unpersuasive, for the reasons described above. Winter, 555 U.S. at 24. The The alternative injunction ordered by the court, 10 Regal’s primary argument is 1 Regal’s contention that its affiliates will abandon Regal in favor 2 of competitors also carries little weight in light of the strict 3 provisions of the Affiliate Agreement, which would prevent 4 affiliates from working against Regal’s interests for a period of 5 at least five years. 6 The deleterious effects of denying American Bullion any 7 relief, in contrast, would be severe, as it has already 8 lost sales and goodwill as a result of the wrongful acts alleged 9 and those acts and effects appear to be continuing. Regal’s public 10 interest arguments again focus on the rights of ostensibly 11 independent affiliates who are, in fact, Regal’s agents. 12 Regal contends for the first time that the statements at issue here 13 have not been proven to be false or deceptive, that argument is at 14 odds with Regal’s apparent acknowledgment that, at the very least, 15 American Bullion is not related to American Bullion Exchange and 16 that Reeves Jameson does not exist.6 17 well served by an injunction preventing deceptive or confusing 18 advertising. 19 LLC, No. CV 14-3954 DDP, 2014 WL 4187982 at *6 (C.D. Cal. Aug. 22, 20 2014). 21 Though The public interest will be See Homeland Housewares LLC v. Euro-Pro Operating The court further notes that nothing in this order or the 22 accompanying injunction deprives Regal of its ability to make use 23 of affiliates. 24 about affiliate marketing arrangements. To be clear, there is nothing inherently wrongful Nor are affiliates, 25 6 26 27 28 Regal’s argument in this context is particularly puzzling given its failure to make similar contentions with respect to American Bullion’s likelihood of success on the merits. As explained above, Regal argues not that the statements are not false or deceptive, but only that independent third parties are responsible for the statements. 11 1 including online affiliates, necessarily agents of the business 2 with which they contract or otherwise form a relationship. 3 e.g., Routt v. Amazon.com, Inc., – Fed. Appx. –, 2014 4252287 (9th 4 Cir. Aug. 29, 2014) (unpublished disposition). 5 specific inquiry can reveal whether an affiliate in name is truly 6 independent or, as is the case here, is so locked-in and 7 subservient to the interests of an associated enterprise as to 8 function as an agent or extension of that business. 9 IV. 10 See, Only a fact- Conclusion For the reasons stated above, Plaintiff’s Motion for 11 Preliminary Injunction is GRANTED. 12 separate order of this court. 13 Affiliate Agreement or otherwise establishes a new, non-controlling 14 relationship with its current agents, the court will consider 15 modifying the terms of the accompanying preliminary injunction. An injunction shall issue by In the event Regal modifies its 16 17 18 19 20 IT IS SO ORDERED. 21 22 23 Dated: November 17, 2014 DEAN D. PREGERSON United States District Judge 24 25 26 27 28 12
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