Charlotte's Web, Inc. v. AAXLL Supply Co LLC ( 2020 )

1 *NOT FOR PUBLICATION* 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 6 CHARLOTTE’S WEB, INC., Case No. 4:20-cv-02692-YGR 7 Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION TO DISMISS 8 vs. AND STRIKE 9 AAXLL SUPPLY CO. LLC, Re: Dkt. No. 55 10 Defendant. 11 AAXLL SUPPLY CO. LLC, 12 Counterclaimant, 13 vs. 14 CHARLOTTE’S WEB, INC., 15 Counter-Defendant. 16 17 On November 10, 2020, the Court heard oral argument on plaintiff and counter-defendant 18 Charlotte’s Web Inc’s (“CW”) motion to dismiss and strike, which was fully briefed. (Dkt. Nos. 19 55, 56, 57.) The Court spent considerable time, on the record, describing the shortcomings of the 20 counterclaim. Given that leave will be given to revise the counterclaim, and having carefully 21 considered the briefing and arguments submitted in this matter, the Court confirms its initial 22 indications and GRANTS IN PART and DENIES IN PART CW’s motion to dismiss and strike on the 23 following grounds: 24 I. Motion to Dismiss1 25 Second, Third, and Eighth Counterclaims: GRANTED WITH LEAVE TO AMEND. In general, 26 “when [a] plaintiff competes directly with defendant, a misrepresentation will give rise to a 27 1 presumed commercial injury that is sufficient to establish standing.” TrafficSchool.com, Inc. v. 2 Edriver Inc., 653 F.3d 820, 827 (9th Cir. 2011) (emphasis supplied). Here, although sparse, 3 defendant and counterclaimant AAXLL Supply Co. LLC d/b/a Balance CBD (“Balance CBD”) 4 properly alleges that it is a competitor of CW in selling hemp wellness products. (See generally 5 Dkt. No. 54 at 13, 33, 34, 43, 54.) Thus, the Court concludes that there is sufficient Article III 6 standing for the second, third, and eighth counterclaims. See, e.g., Thermolife Int.’l LLC v. Sparta 7 Nutrition LLC, CV-19-01715-PHX-SMB, 2020 WL 248164, at *4-5 (D. Ariz. Jan. 16, 2020) 8 (finding Article III standing based on similar allegations). 9 With respect to the Lanham Act counterclaims, the second and third counterclaims, 10 Balance CBD fails to allege such claims adequately. To bring a false advertising claim under the 11 Lanham Act, a claimant must allege: (1) that the plaintiff’s interests fall within the zone of 12 interests protected by the Lanham Act; and, (2) that its injuries are proximately caused by the 13 defendant’s actions. Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 131-32 14 (2014). “[T]o come within the zone of interests in a suit for false advertising under § 1125(a), a 15 plaintiff must allege an injury to a commercial interest in reputation or sales.” Id. at 131-32. Mere 16 allegations that one “has ‘suffered, and will continue to suffer damage to its business, reputation, 17 and good will and has lost sales and profits,’ . . . falls far short of establishing enough factual 18 allegations to show its claim falls within the ‘zone of interests.’” See ThermoLife Int’l, 2020 WL 19 248164, at *7 (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Moreover, the “proximate- 20 cause requirement generally bars suits for alleged harm that is too remote from the defendant’s 21 unlawful conduct.” Lexmark Int’l, Inc, 572 U.S. at 133. 22 Here, Balance CBD has not alleged sufficient allegations regarding competitive harm. 23 Thermolife, 2020 WL 248164, at *7 (“[The complaint] simply alleges [p]laintiff has ‘suffered a 24 commercial injury to its reputation or sales’ that is ‘harmful to [its] ability to compete in the 25 dietary supplement market.’ . . . This does not set forth sufficient factual allegations to show that 26 [p]laintiff’s injury falls within the zone of interests.”). Moreover, because of the deficiency with 27 respect to the allegations of alleged competition, Balance CBD also failed to allege that the 1 intervening reasons for why Plaintiff's sales decreased, including new market entrants, increased . . 2 . regulation, a reduction of consumers’ discretionary income, or even a change in consumer 3 preferences . . . . Simply put, the Complaint's vague and speculative allegations do not show 4 Defendant's false advertising caused its harm any more than any one of these reasons could have. . 5 . . Without more, the Court is hesitant to disregard these many ‘obvious alternative explanation[s]’ 6 for Plaintiff's vaguely identified injuries even accepting the Complaint's well-pled allegations as 7 true.”). Accordingly, the motion is GRANTED WITH LEAVE TO AMEND with respect to the second 8 and third counterclaims. 9 Finally, with respect to the eighth counterclaim based on the Unfair Competition Law 10 (“UCL”), Balance CBD also fails to allege such a claim adequately. A plaintiff is required to 11 allege for a UCL claim that it has (1) suffered an injury in fact and (2) lost money or property as a 12 result of the unfair competition. Birdsong v. Apple, Inc., 590 F.3d 955, 959-60 (9th Cir. 2009). 13 “The requisite injury must be ‘an invasion of a legally protected interest which is (a) concrete and 14 particularized, and (b) actual or imminent, not conjectural or hypothetical.’” Id. at 960 (citation 15 omitted). For similar reasons as discussed for the Lanham Act, Balance CBD has not yet 16 sufficiently alleged sufficient facts demonstrating that any harm to Balance CBD is due to CW’s 17 actions. Accordingly, the motion is GRANTED WITH LEAVE TO AMEND with respect to eighth 18 counterclaim. 19 II. Motion to Strike 20 First and Third Affirmative Defenses: GRANTED WITHOUT LEAVE TO AMEND. Balance 21 CBD’s first affirmative of priority of use is duplicative of its tenth affirmative defense based on 22 illegality. Moreover, based on the pleadings and record in this matter, Balance CBD cannot 23 amend to state such a defense. See One Indus., LLC v. Jim O'Neal Distrib., Inc., 578 F.3d 1154, 24 1158 (9th Cir. 2009) (“It is a cardinal principle of federal trademark law that the party who uses 25 the mark first gets priority.”), cert. denied, 559 U.S. 992 (2010). Balance CBD further does not 26 contest the striking of the third affirmative defense of deceptive misdescriptive. Accordingly, the 27 motion is GRANTED WITHOUT LEAVE TO AMEND as to these affirmative defenses. 1 Sixth, Seventh, and Eighth Affirmative Defenses: DENIED. As discussed at the hearing, the 2 sixth (acquiescence), seventh (waiver), and eighth (estoppel) affirmative defenses are not 3 appropriately stricken at this time. This is especially so where neither party cites authority 4 || foreclosing Balance CBD from relying on these affirmative defenses and on CW’s past actions 5 with respect to other entities and individuals. Accordingly, the motion with respect to these 6 affirmative defenses is DENIED. 7 Twelfth Affirmative Defense: GRANTED WITH LEAVE TO AMEND. As the Court explained 8 in Products & Ventures International vy. Axus Stationary (Shanghai) Ltd., a defendant “must plead 9 facts sufficient to establish the applicability of’ the failure to mitigate damages defense. No. 4:16- 10 cv-00669-YGR, 2017 WL 1330598, at *4 (N.D. Cal. Apr. 11, 2017) (striking affirmative defense 11 of failure to mitigate damages). Here, Balance CBD’s twelfth affirmative defense, a failure to 12 || mitigate damages, lacks sufficient allegations establishing its applicability. Accordingly, the 13 motion is GRANTED WITH LEAVE TO AMEND as to the twelfth affirmative defense. 14 A third amended answer and counterclaims is due within twenty-one (21) days of the date 3 15 of this Order. CW shall thereafter file a response within twenty-one (21) days from the date of 16 || the filing of the third amended answer and counterclaims 2 17 This Order terminates Docket Number 55. Z 18 IT Is SO ORDERED. 19 20 || Dated: November 24. 2020 Lopene tefflees YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT JUDGE 22 23 24 25 26 27 28