American Bullion, Inc. v. Regal Assets, LLC et al, No. 2:2014cv01873 - Document 178 (C.D. Cal. 2014)
Court Description: ORDER RE: DEFENDANTS MOTIONS FOR RECONSIDERATION AND MODIFICATION OF INJUNCTION 166 , 167 by Judge Dean D. Pregerson: The court has reconsidered its order granting a preliminary injunction. The court again concludes,however, that a preliminary inj unction is warranted, albeit with some modifications. The injunction is STAYED for a further thirty days, so as to allow Defendants to take any further steps they deem necessary. The stay shall expire on January 29, 2015, at which time the injunction, delineated by separate order of this court, will take effect. (lc). Modified on 12/30/2014. (lc).
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American Bullion, Inc. v. Regal Assets, LLC et al Doc. 178 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 FELIX, AN INDIVIDUAL, Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 14-01873 DDP (ASx) ORDER RE: DEFENDANTS’ MOTIONS FOR RECONSIDERATION AND MODIFICATION OF INJUNCTION 17 Presently before the court are Defendants Regal Assets, LLC 18 19 and Tyler Gallagher’s (collectively, “Defendants” or “Regal”) 20 separate motions for reconsideration of this court’s November 17 21 order granting a preliminary injunction and/or modification of the 22 injunction. 23 heard oral argument, and reviewed the evidence, the court grants 24 the motion for reconsideration, concludes that a modified 25 preliminary injunction is warranted, and adopts the following 26 order. 27 /// 28 /// Having considered the submissions of the parties, Dockets.Justia.com 1 I. Background 2 As described in detail in this court’s order granting a 3 preliminary injunction, Plaintiff American Bullion, Inc. and 4 Defendants are competitors in the field of adding gold and other 5 precious metals to individual retirement accounts. 6 promote themselves on the internet. 7 Defendants operate an affiliate marketing program, and that 8 Defendants control the paid affiliates. 9 that affiliate websites disseminate false statements about Both parties Plaintiff contends that Plaintiffs further allege 10 Plaintiff, praise Defendants, disparage Plaintiff’s services, 11 misdirect Plaintiff’s potential customers to Defendants’ site, and 12 fail to disclose the financial relationship between Defendants and 13 the affiliates. 14 false and misleading advertising under the Lanham Act, 15 U.S.C. 15 1125(a), and state law, as well as state law causes of action for 16 unfair competition, unfair business practices, trade libel, 17 defamation, and intentional interference with prospective economic 18 advantage. 19 Plaintiff’s Complaint alleges causes of action for Plaintiff moved for a preliminary injunction. The bulk of the 20 parties’ briefing, and much of oral argument, revolved around 21 Regal’s degree of control over its affiliates and concomitant 22 liability for their actions. 23 concluded that Regal’s affiliates were likely its agents, that the 24 affiliates’ relevant acts fell within the scope of their agency, 25 and that Plaintiffs had made the requisite showing for a 26 preliminary injunction under Winter v. Natural Res. Defense 27 Counsel, 555 U.S. 7, 20 (2008). On November 17, 2014, this court Defendants now ask that this court 28 2 1 vacate the order and injunction on reconsideration or, in the 2 alternative, modify the terms of the injunction. 3 II. Discussion 4 A. 5 Under Federal Rule of Civil Procedure 60(b), a party may seek Reconsideration 6 reconsideration of a final judgment or court order for any reason 7 that justifies relief. 8 7-18 further explains that such reasons include: 9 13 “(a) a material difference in fact or law from that presented to the Court . . . that . . . could not have been known to the party moving for reconsideration at the time of such decision, or (b) the emergence of new material facts or a change of law occurring after the time of such decision, or (c) a manifest showing of a failure to consider material facts presented to the Court before such decision.” C.D. Cal. L.R. 7-18. A motion for reconsideration may not, 14 however, “in any manner repeat any oral or written argument made in 15 support of or in opposition to the original motion.” 10 11 12 16 Central District of California Local Rules Id. Defendants advance several grounds for reconsideration, some 17 of which were clearly raised in connection with the original 18 motion. 19 relied upon evidence that it had excluded. 20 primarily to the Third Declaration of James Berkley in support of 21 Plaintiff’s motion. 22 several examples of likely wrongful conduct on Regal affiliate 23 websites. 24 characterize the Berkley III evidence as rebuttal evidence, 25 submitted to rebut Defendants’ contentions that wrongful acts were 26 limited and had ceased. 27 Defendants that new evidence may generally not be submitted on 28 Reply. Among Defendants’ arguments is a contention that the court Defendants refer The “Berkley III” declaration sets forth Though submitted with Plaintiff’s Reply, Plaintiffs At argument, the court agreed with The court did not, however, make any explicit rulings 3 1 regarding the Berkeley III declaration, to which Defendants did not 2 object. 3 from objecting by the court’s general statement is not persuasive, 4 under the circumstances, the court finds reconsideration warranted 5 for purposes of providing Defendants a full opportunity to address 6 the Berkley evidence. 7 Though Defendants’ contention that they were “blocked” The court also finds reconsideration warranted in light of the 8 underlying basis for the court’s order. 9 concluded that Regal’s affiliates are likely its agents. In summary, the court While 10 Plaintiff’s complaint does allege that Regal exercises control of 11 its affiliates, the agency theory was not briefed thoroughly by the 12 parties. 13 argument. 14 be heard on the agency issue, and therefore denied due process, is 15 therefore not well taken.1 16 and fair discussion of the issues, the court finds reconsideration 17 appropriate. 18 B. 19 Defendants argue that the Winter preliminary injunction 20 standard is not appropriate in cases involving speech issues, and 21 that to enjoin Regal’s commercial speech would be to impose an 22 unconstitutional prior restraint upon it. The issue was, however, discussed at length during oral Regal’s contention that it was denied the opportunity to Nevertheless, in the interest of a full False Advertising Injunctions 23 24 25 26 27 28 1 Regal makes a similar, and similarly unconvincing, due process argument with respect to the injunction ultimately issued by the court. That injunction, as all parties seem to acknowledge, was significantly different from that proposed by Plaintiff and opposed by Defendants, in that it was far narrower and less restrictive. Defendants’ apparent contention that due process could only have been satisfied if the court had entered (or rejected outright) the harsher injunction opposed by Defendants is somewhat puzzling. 4 1 It is not entirely clear whether Defendants contend that 2 commercial speech can never be preliminarily enjoined. 3 Defendants cite repeatedly to Hammes Co. Healthcare , LLC v. Tri- 4 City Healthcare Dist., 2011 WL 6182423 at *16 (S.D. Cal. 2011) for 5 the proposition that the court cannot enjoin speech unless it first 6 makes express findings that the enjoined conduct presents a clear 7 and present danger to some competing right. 8 discussed prior restraints of speech and the First Amended in the 9 context of a gag order, and had nothing to do with false 10 Hammes, however, advertising. 11 Defendants also cite to cases where district courts declined 12 to preliminarily enjoin commercial speech. 13 356 F.Supp.2d 1071, 1084 (C.D. Cal. 2003), for example, the court 14 found that determinations of actual truth or falsity of certain 15 statements were not yet at issue, and therefore suggested that the 16 court could not enjoin that speech. 17 that even if the subject of actual falsity were before the court, 18 the court would not issue an injunction because the commercial 19 speech at issue was not false. 20 Consumers Union of U.S., Inc., 12 F.Supp.2d 1035, 1049 (C.D. Cal. 21 1998) (“[A]n injunction would necessarily precede an adequate 22 determination that a particular statement by defendant was false . 23 . . . 24 libelous, it is not a prior restraint for the court to enjoin the 25 defendant from repeating that statement.” 26 In New.net v. Lavasoft, The court also held, however, Id.; See also Isuzu Motors Ltd. V. [O]nce a jury has determined that a certain statement is These cases do not stand, however, for the proposition that 27 courts cannot enjoin any commercial speech. 28 that “[f]alse or misleading commercial speech is not protected” 5 It is well established 1 under the First Amendment. 2 255 F.3d 1180, 1184 (9th Cir. 2001). 3 issue preliminary injunctions in false advertising cases, even in 4 the face of First Amendment challenges. 5 Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer 6 Pharmaceuticals Co., 290 F.3d 578 (3rd Cir. 2002); Vidal Sassoon, 7 Inc. v. Bristol-Myers Co., 661 F.2d 272 (2nd Cir. 1981); Osmose, 8 Inc. v. Viance, LLC, 612 F.3d 1298 (11th Cir. 2010); J.K. Harris & 9 Company, LLC v. Kassel, 253 F.Supp.2d 1127-29, 1124 (N.D. Cal. 10 11 Hoffman v. Capital Cities/ABC, Inc., Indeed, courts regularly See, e.g. Novartis 2003). To the extent Defendants intend to argue that there is not yet 12 any indication in this case that any false statements have been 13 made by anyone, that position flies in the face of the evidence 14 before the court, and conflicts with Defendants’ own prior 15 position. 16 little dispute that false statements were disseminated by some 17 Regal affiliates. 18 acknowledge that some Regal affiliate sites displayed images 19 appropriated from obituaries as if to suggest that the deceased 20 individual pictured endorsed Regal, contained completely fabricated 21 personas and backgrounds of nonexistent endorsers, and explicitly 22 and falsely stated that Plaintiff was found guilty in a fraud suit 23 and was later sued by the U.S. Commodities Futures Trading 24 Commission. 25 injunction stage, that these statements are false, and therefore 26 enjoy no First Amendment protection. 27 28 As discussed in this court’s order, there appeared to be Regal appeared, and appears still, to There is little question, even at the preliminary That said, Defendants raise a colorable argument that the balance of hardships, public interest factors, and the threat of 6 1 irreparable harm to Plaintiff do not justify certain of the 2 injunction’s provisions. 3 particular, the court is persuaded that a provision limiting the 4 types of photographs that can be placed upon affiliates’ websites 5 is not sufficiently clear, and will modify the injunction to 6 address that concern. 7 such a modification. 8 modifications, such as the substitution of more qualified language 9 regarding the neutrality of affiliate website content, is See Winter,555 U.S. at 20. In Plaintiff, for its part, does not oppose The court finds that certain other minor 10 warranted. 11 will, therefore, issue. A separate order with modified injunction language, 12 C. 13 Defendants also contend that the court erred in issuing a Agency 14 preliminary injunction based on a negligence theory, despite the 15 fact that complaint alleges only intentional acts. 16 matter, Defendants’ characterization of the court’s order is 17 questionable. 18 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.” 21 at 6, citing Ogala v. Chevron Corp., No. 14-cv-173-SC, 2014 WL 22 2089901 *3 (N.D. Cal. May 19, 2014) (citing Cal Civ. Code §§ 2338, 23 2339)). 24 liability principles concerning both agents’ negligent actions and 25 intentional torts. 26 their agents’ negligent actions within the scope of the agency, as 27 well as for certain other, intentional acts, even those outside the As an initial Defendants point to the court’s statement that “A (Order That quote, though perhaps not entirely clear, refers to In other words, principals may be liable for 28 7 1 scope of the agency, that are subsequently ratified by the 2 principal. 3 The court’s order was primarily concerned with whether an 4 agency relationship existed between Regal and its affiliates, and 5 not whether affiliates engaged in negligent acts as opposed to 6 intentional ones. 7 in this case. 8 distinction is crucial because principals are cannot be held liable 9 for agents’ intentional acts unless the principal ratifies those 10 That distinction is not particularly important Defendants argue otherwise, contending that the acts. 11 Defendants are mistaken. California Civil Code Section 2238, 12 regarding “responsibility for agent’s negligence or omission,” 13 includes principal liability for “wrongful acts committed by such 14 agent in and as a part of the transactions of such business, and 15 for his willful omission to fulfill the obligations of the 16 principal.” 17 liability attaches where the intentional tort is an “outgrowth” of 18 the employment is foreseeable, “in the sense that the employment is 19 such as predictably to create the risk employees will commit 20 intentional torts of the type for which liability is sought.” 21 Kephart v. Genuity, Inc., 136 Cal.App.4th 280, 293 (2006) (internal 22 quotation omitted). This language encompasses intentional acts. Principal 23 Defendants appear to rely on California Civil Code Section 24 2339, which states, with regard to “principal’s acts for wrongs 25 willfully committed by the agent,” that a principal is only liable 26 under the section if he authorizes or ratifies the principal’s 27 acts. 28 outside the scope of the agency. This section applies, however, to agents’ intentional acts In other words, Section 2239 8 1 shields the principal from liability, absent ratification, “when an 2 employee’s misconduct does not arise from the conduct of the 3 employer’s enterprise, but instead arises from a personal dispute.” 4 Id. at 292. 5 hold Defendants liable for their agents’ intentional acts, 6 Defendants here arguably have ratified those acts by paying 7 affiliates for their lead and sales generating efforts, even when 8 those efforts included dissemination of false and disparaging 9 statements. 10 D. In any event, even if ratification were required to Changed Circumstances 11 Lastly, Defendants argue that no injunction should issue, or 12 that the injunction should be significantly modified, as a result 13 of changed circumstances. 14 an outside monitoring firm, have hired a new, experienced General 15 Counsel, have terminated 2,100 affiliates from the Regal Affiliate 16 program, and have changed the provisions of the agreement between 17 Regal and its affiliates. 18 Most notably, Defendants have retained Of these, the court finds the changes to the Affiliate 19 Agreement most significant. 20 Regal affiliates was a major factor in the court’s prior conclusion 21 that Regal’s affiliates are its agents. 22 they encourage affiliates to work for multiple companies, and that 23 12% of affiliates in fact do so. 24 Indeed, the “locked-in” nature of Defendants now claim that Though the court welcomes Defendants’ changes to the 25 agreement, the new agreement does not change the fundamental nature 26 of the relationship between Regal and its affiliates. 27 affiliates at issue in Routt v. Amazon.com, Inc., 584 Fed.Appx. 713 28 (9th Cir. 2014) (unpublished disposition), Regal affiliates are, in 9 Unlike the 1 essence, sales agents working on commission. Indeed, Regal 2 affiliates earn commissions for generating sales for Regal, as well 3 as for providing certain leads, regardless of whether those leads 4 result in sales. 5 200, so long as Regal pays affiliates to generate sales, it cannot 6 avoid liability for affiliates’ actions in pursuit of that goal. 7 Furthermore, to the extent Regal suffers its agents to continue to 8 disseminate false or misleading information, such as by allowing 9 agents who post No matter whether Regal has 2,000 affiliates or to remain in the affiliate program and/or 10 continuing to pay those agents for generating leads and sales for 11 Regal, Regal may be subject to punitive damages. 12 IV. 13 Conclusion For the reasons stated above, Defendants’ Motion are GRANTED 14 in part and DENIED in part. 15 granting a preliminary injunction. 16 however, that a preliminary injunction is warranted, albeit with 17 some modifications. 18 days, so as to allow Defendants to take any further steps they deem 19 necessary. 20 time the injunction, delineated by separate order of this court, 21 will take effect. 22 IT IS SO ORDERED. The court has reconsidered its order The court again concludes, The injunction is STAYED for a further thirty The stay shall expire on January 29, 2015, at which 23 24 25 Dated: December 30, 2014 DEAN D. PREGERSON United States District Judge 26 27 28 10
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