Baird v. Osteostrong Franchising, LLC. ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 JOHN P. BAIRD; BRET KURIHARA; OS No. 2:20-cv-02010-TLN-DMC NEW MEXICO, LLC; BNS RD, LLC; 12 SEAN SIMPSON; CHARLA SIMPSON; MARY JO MCHENRY; and K& L 13 WELLNESS, LLC, ORDER 14 Plaintiffs, 15 v. 16 OSTEOSTRONG FRANCHISING, LLC; KYLE ZAGRODZKY; and JOHN 17 JAQUISH, 18 Defendants. 19 20 This matter is before the Court on Plaintiffs John P. Baird, Bret Kurihara, OS New 21 Mexico, LLC, BNS RD, LLC, Sean Simpson, Charla Simpson, Mary Jo McHenry, and K&L 22 Wellness, LLC’s (collectively, “Plaintiffs”) Motion for Preliminary Injunction.1 (ECF No. 4.) 23 Defendants OsteoStrong Franchising, LLC (“OsteoStrong”) and Kyle Zagrodzky (“Zagrodzky”) 24 (collectively, “Defendants”) have filed an opposition.2 (ECF No. 9.) Plaintiffs have filed a reply. 25 1 Plaintiffs originally filed their motion as a Motion for a Temporary Restraining Order but 26 the Court, in its November 6, 2020 Order, denied the Motion for a Temporary Restraining Order and instead construes it as a Motion for Preliminary Injunction. (ECF No. 5.) 27 2 This action involves three named Defendants. Defendant John Jaquish (“Jacquish”) did 28 not join in this opposition. 1 (ECF No. 12.) For the reasons set forth herein, Plaintiffs’ motion is DENIED. 2 I. FACTUAL AND PROCEDURAL BACKGROUND 3 OsteoStrong is a company that sells franchises for bone density improvement centers that 4 utilize osteogenic loading equipment.3 (ECF No. 1 at ¶ 22.) The equipment is branded as 5 “Spectrum equipment” pursuant to a non-exclusive license from Performance Health Systems. 6 (Id. at ¶¶ 19, 20.) OsteoStrong claims Spectrum equipment increases bone density, prevents 7 osteoporosis, and “diagnose[s], cure[s], mitigate[s], treat[s], or prevent[s] medical diseases.” (Id. 8 at ¶¶ 16, 89.) 9 Plaintiffs are small business owners and franchisees of OsteoStrong centers throughout the 10 United States. (ECF No. 4 at ¶¶ 1, 2.) Plaintiffs allege that OsteoStrong “intentionally omit[s] 11 certain information, mak[es] affirmative misrepresentations, and intentionally convey[s] false 12 information prior to executing the [franchise agreement] in an effort to induce potential 13 franchisees into signing the agreement.” (Id. at ¶ 35.) Specifically, Plaintiffs were harmed by 14 Defendants’ intentional omission of information regarding known bankruptcies and lawsuits in 15 Defendants’ Franchise Disclosure Document (“FDD”),4 their affirmative misrepresentation of the 16 patent rights and proprietary nature of OsteoStrong’s equipment, and their intentional 17 misrepresentation of their organizational relationship with motivational speaker Tony Robbins. 18 (Id. at ¶¶ 36, 42–47, 48–58, 59–65.) 19 Plaintiffs further allege that OsteoStrong also “create[s] an impossibility of performance 20 under the [franchise agreement] and negligently expos[es] franchisees to criminal and civil 21 liability.” (Id. at ¶ 35.) Specifically, OsteoStrong “violates [f]ederal law by marketing its system 22 23 3 “Osteogenic loading” exercises are defined in the Complaint as equipment “intended to measure forces on bone and muscle, and through the application of force, or loads, foster 24 strengthening of both bone and muscle tissue.” (ECF No. 1 at ¶ 17.) 25 4 As Plaintiffs note, in accordance with the Federal Trade Commission’s Franchise Rule, 16 26 C.F.R. Parts 436 and 437, a franchisor is required to serve a complete and accurate FDD on each potential franchisee at least 14 days before entering into a Franchise Agreement (“FA”) with the 27 potential franchisee. (Id. at ¶ 23.) Plaintiffs also note that they received and relied upon FDDs issued by OsteoStrong. (Id. at ¶¶ 37–41.) 28 1 as a medical treatment,” and further fails to comply with the Federal Food, Drug, and Cosmetic 2 Act (“FDCA”) and the U.S. Food and Drug Administration (“FDA”) regulations for medical 3 devices. (Id. at ¶¶ 67, 68–88.) Additionally, OsteoStrong “requires franchisees to use these same 4 marketing materials and practices” and “may unilaterally terminate the FA with the [f]ranchisee 5 for failure to do so.” (Id. at ¶¶ 67, 110.) Plaintiffs also allege that the FAs require them to 6 comply with “all applicable laws, regulations, codes, and ordinances including, without 7 limitation, all governmental regulations relating to sales and marketing, which includes the FDA.” 8 (Id. at ¶ 113.) However, Plaintiffs believe that performance under the FA is impossible because 9 OsteoStrong mandates the usage of marketing materials and practices that “[do] not comply with 10 all applicable laws, regulations, codes and ordinances.” (Id. at ¶ 114.) Plaintiffs assert that had 11 they been aware the marketing materials and practices provided to them were not in compliance 12 with local and federal laws, they would not have signed the FAs. (Id. at ¶ 120.) 13 On October 7, 2020, Plaintiffs filed a Complaint in this Court, alleging claims for: (1) 14 common law fraud; (2) common law fraudulent inducement; (3) common law negligent 15 misrepresentation by OsteoStrong; (4) common law negligent misrepresentation by Zagrodzky 16 and Jaquish in their individual capacity; (5) unjust enrichment; (6) violations of the California 17 Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code §§ 17200–17210); (7) violations of 18 the California Corporations Code; (8) violations of 15 U.S.C. § 52; (9) violations of 35 U.S.C. § 19 292; (10) declaratory judgment that the franchise agreements are void as contracts for an illegal 20 purpose or otherwise contrary to public policy; and (11) preliminary and permanent injunctive 21 relief. (See ECF No. 1 at 36–50.) 22 On November 4, 2020, Plaintiffs filed the instant Motion for a Temporary Restraining 23 Order. (See ECF Nos. 4.) In its November 5, 2020 Order, the Court denied Plaintiffs’ Motion, 24 construing it instead as a Motion for Preliminary Injunction. (See ECF No. 5.) The Court found 25 the length of time between the first instance of alleged harm and Plaintiffs’ motion contradicts 26 Plaintiffs’ allegation of immediate, irreparable injury. (ECF No. 5 at 5 (citing ECF No. 1 at 12 27 (noting the years when Plaintiffs “received and relied upon an FDD” as 2013, 2014, 2015, and 28 2017)).) The Court also noted Plaintiffs failed to make a showing of immediate, irreparable 1 injury because they have not pleaded in their Complaint or demonstrated in their motion any 2 specific dates or times to signify that relief is urgently needed. (Id. at 6.) On December 3, 2020, 3 Defendants filed an opposition. (ECF No. 9.) On December 10, 2020, Plaintiffs filed a reply. 4 (ECF No. 12.) 5 II. STANDARD OF LAW 6 Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear 7 showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 8 U.S. 7, 22 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam)). “The 9 purpose of a preliminary injunction is merely to preserve the relative positions of the parties until 10 a trial on the merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981); see also 11 Costa Mesa City Emps. Ass’n v. City of Costa Mesa, 209 Cal. App. 4th 298, 305 (2012) (“The 12 purpose of such an order is to preserve the status quo until a final determination following a 13 trial.”); GoTo.com, Inc. v. Walt Disney, Co., 202 F.3d 1199, 1210 (9th Cir. 2000) (“The status quo 14 ante litem refers not simply to any situation before the filing of a lawsuit, but instead to the last 15 uncontested status which preceded the pending controversy.”). 16 “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed 17 on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, 18 [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” 19 Winter, 555 U.S. at 20. A plaintiff must “make a showing on all four prongs” of the Winter test 20 to obtain a preliminary injunction. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 21 (9th Cir. 2011). In evaluating a plaintiff’s motion for preliminary injunction, a district court may 22 weigh the plaintiff’s showings on the Winter elements using a sliding-scale approach. Id. A 23 stronger showing on the balance of the hardships may support issuing a preliminary injunction 24 even where the plaintiff shows that there are “serious questions on the merits . . . so long as the 25 plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the 26 public interest.” Id. Simply put, plaintiffs must demonstrate, “that [if] serious questions going to 27 the merits were raised [then] the balance of hardships [must] tip[ ] sharply” in [p]laintiffs’ favor 28 in order to succeed in a request for preliminary injunction. Id. at 1134–35. 1 III. ANALYSIS 2 Plaintiffs specifically request Defendants be enjoined from the following: 3 • Representing that their Spectrum equipment or the OsteoStrong system is able to diagnose, treat, or cure any medical condition or using claims like “reversing 4 Osteoporosis” or “reversing type 2 Diabetes;” 5 • Representing that OsteoStrong owns any patented technology; • Representing that the equipment is safe; 6 • Representing that Tony Robbins is a Partner in OsteoStrong; 7 • Ceasing to provide access to services and support as required under the Franchise Agreement and as established by regular practice for the operation of 8 the franchises. 9 (ECF No. 4.) 10 In opposition to the instant motion, Defendants argue Plaintiffs cannot show immediate, 11 irreparable harm for three reasons: (1) Plaintiffs’ motion is now moot because they have 12 permanently ceased operating their businesses, meaning Plaintiffs seek an injunction “based on 13 alleged past wrongs only because they cannot now be wronged again”; (2) Plaintiffs do not allege 14 any evidence to show actual harm has been threatened against them or is imminent, nor do they 15 explain why injunctive relief is necessary after years of operating under the FAs; and (3) 16 Defendants do not engage in the conduct Plaintiffs seek to enjoin. (ECF No. 9 at 10–15 17 (emphasis removed).) 18 In reply, Plaintiffs assert their businesses are not permanently closed, as Plaintiffs still “(1) 19 have active agreements with OsteoStrong, (2) have active leases with landlords regarding 20 franchise space, (3) have clientele, (4) own the equipment, and (5) have continuing liability for 21 past and future conduct.” (ECF No. 12 at 3–4.) Plaintiffs maintain there has been no rescission 22 of the agreements, as they seek an injunction “based on continuing, present adverse harms.” (Id. 23 at 4–5.) Plaintiffs note the FDD and FA require them “to use marketing and advertising materials 24 which contain misrepresentations and falsities regarding the patented nature of the OsteoStrong 25 equipment, the degree of physical benefit consumers can receive from the equipment, the injury- 26 free nature of the equipment, and the diagnostic, treatment, and curative effects of the 27 equipment.” (Id. at 6.) Plaintiffs maintain these are misrepresentations because OsteoStrong’s 28 1 equipment has not been reviewed or approved as a medical device by the FDA and FDCA even 2 though OsteoStrong markets the equipment as a medical device, OsteoStrong does not own the 3 patent to the equipment in its facilities, and OsteoStrong’s equipment is not injury-free since 4 Plaintiffs and their clientele have experienced injuries. (Id.) 5 “An irreparable harm is one that cannot be redressed by a legal or equitable remedy 6 following trial.” Premier Nutrition, Inc. v. Organic Food Bar, Inc., 475 F. Supp. 2d 995, 1007 7 (C.D. Cal. 2007) (quoting Optinrealbig.com LLC v. Ironport Sys., 323 F. Supp. 2d 1037, 1051 8 (N.D. Cal. 2004); Public Util. Comm’n v. FERC, 814 F.2d 560, 562 (9th Cir. 1987)). Plaintiffs 9 seeking injunctive relief must prove that irreparable harm is likely, not just possible, in its 10 absence. Winter, 555 U.S. at 22; Alliance for the Wild Rockies, 632 F.3d at 1131. “Issuing a 11 preliminary injunction based only on a possibility of irreparable harm is inconsistent with [the 12 Supreme Court’s] characterization of injunctive relief as an extraordinary remedy . . .” Winter, 13 555 U.S. at 22. Speculative injury is insufficient to demonstrate irreparable injury. Goldie’s 14 Bookstore, Inc. v. Superior Court of Cal., 739 F.2d 466, 472 (9th Cir. 1984) (district court’s 15 finding that sublessee of commercial property would lose goodwill and “untold” customers was 16 speculative, as it was not based on any factual allegations); Center for Food Safety v. Vilsack, 636 17 F.3d 1166, 1172–73 (9th Cir. 2011) (district court abused its discretion in granting a preliminary 18 injunction with only past examples of harm and no mention of “continuing, present adverse 19 effects”). 20 Here, the Court need not address all of the parties’ arguments on imminent, irreparable 21 injury because it finds Defendants’ argument regarding Plaintiffs’ failure to demonstrate actual 22 harm persuasive. Despite the Court explicitly noting in its November 5, 2020 Order that 23 Plaintiffs have not pleaded in their Complaint or demonstrated any specific dates or times to 24 signify that relief is urgently needed (see ECF No. 5 at 5–6), Plaintiffs surprisingly once again fail 25 to convince the Court that any concrete harm is forthcoming in their reply. (See ECF No. 12.) 26 The crux of Plaintiffs’ argument is that they are currently being forced to choose between 27 continuing to abide by the FDD and FA and violating the law, or suffering the injury of obeying 28 the law and losing their businesses. (Id. at 4.) However, Defendants note that “Plaintiffs do not 1 | cite any action that has been taken against them individually or against OsteoStrong by the FDA” 2 | and that “[ijn OsteoStrong’s entire existence, OsteoStrong has never received a complaint from 3 | the FDA.” (ECF No. 9 at 13 (emphasis in original).) The Court finds this point convincing as 4 | evidence of lack of harm. Although Plaintiffs note that they and their clientele “have experienced 5 || injuries all while OsteoStrong actively fails to record, report, or publish these incidents of injury” 6 | (see ECF No. 12 at 6), Plaintiffs do not contend that OsteoStrong is required to do so through any 7 | law or contractual obligation. Additionally, Plaintiffs do not provide any information about 8 | complaints from their clientele or employees threatening civil action against them, nor do they 9 | provide information about any impending criminal investigation or action. Based on the 10 | foregoing, Plaintiffs’ contention is that irreparable harm is possible, not likely, which is 11 | insufficient for injunctive relief. See Winter, 555 U.S. at 22; Alliance for the Wild Rockies, 632 12 | F.3d at 1131. If there is evidence of actual imminent, irreparable harm in the future, Plaintiffs 13 | may refile their motion. 14 As stated in its November 6, 2020 Order, if the Court finds that Plaintiffs have not met 15 | their burden as to one Winter prong, then the Court need not address the remaining prongs as 16 | Plaintiffs have not met their burden for injunctive relief. (ECF No. 5 at 5); see also Alliance for 17 | the Wild Rockies, 632 F.3d at 1135 (stating that the Winter test requires a plaintiff to “make a 18 || showing on all four prongs”). The Court once again finds Plaintiffs have failed to make a 19 || showing of immediate, irreparable injury and therefore declines to address the remaining Winter 20 || elements with respect to Plaintiffs’ Motion for Preliminary Injunction. (ECF No. 4.) 21 IV. CONCLUSION 22 For the foregoing reasons, the Court DENIES Plaintiffs’ Motion for a Preliminary 23 | Injunction. (ECF No. 4.) 24 ITIS SO ORDERED. ry /) 25 | DATED: May 3, 2021 “ \ | yf / Voix 26 □□ ZA N\ Troy L. Nunley . } United States District Judge 28