Opinion
Case No. 2:20-CV-07652-JWH-JCx
2021-06-07
BHRS GROUP, LLC, Plaintiff, v. BRIO WATER TECHNOLOGY, INC., f/k/a Down Town Wholesalers, Inc., and Does 1-10, inclusive, Defendants.
Peter J. Farnese, Beshada Farnese LLP, Los Angeles, CA, for Plaintiff. Elan Bloch, Christopher S. Reeder, CSReeder PC, Los Angeles, CA, for Defendant Brio Water Technology, Inc.
Peter J. Farnese, Beshada Farnese LLP, Los Angeles, CA, for Plaintiff.
Elan Bloch, Christopher S. Reeder, CSReeder PC, Los Angeles, CA, for Defendant Brio Water Technology, Inc.
ORDER ON DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT PURSUANT TO RULE 12(b)(6) OF THE FEDERAL RULES OF CIVIL PROCEDURE [ECF No. 27]
John W. Holcomb, UNITED STATES DISTRICT JUDGE
Before the Court is the motion of Defendant Brio Water Technology, Inc. to dismiss the Amended Complaint filed by Plaintiff BHRS Group, LLC, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. After considering the papers filed in support and in opposition, and the arguments of counsel at the hearing on February 19, 2021, the Court GRANTS the Motion, without leave to amend .
Def. Brio Water Technology, Inc.’s Mot. to Dismiss Pl.’s Amend. Compl. pursuant to Fed. R. Civ. P. 12(b)(6) (the "Motion") [ECF No. 27].
First Amend. Compl. (the "Amended Complaint") [ECF No. 26].
The Court considered the following papers: (1) the Amended Complaint; (2) the Motion (including its attachments); (3) Pl.’s Opp'n to the Motion (the "Opposition") [ECF No. 28]; and (4) Def.’s Reply in Supp. of the Motion (the "Reply") [ECF No. 29].
I. BACKGROUND
A. Procedural Background
BHRS filed its original complaint in this action on August 21, 2020. On September 23, 2020, Brio moved to dismiss the original complaint pursuant to Rule 12(b)(6), which BHRS opposed. The Court granted Brio's motion to dismiss, with leave to amend, with respect to each of the four claims for relief asserted by BHRS.
Order on Def.’s Mot. to Dismiss Pursuant to R. 12(b)(6) of the Fed. R. Civ. P. (the "First Order") [ECF No. 22].
BHRS filed its Amended Complaint on January 8, 2021. In that pleading, BHRS asserts the following three claims for relief against Brio: (1) Violation of the Lanham Act, 28 U.S.C. § 1125; (2) Violation of California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. ; and (3) Breach of Contract—Third Party Beneficiary. Brio filed the instant Motion on January 22, 2021. The Motion is fully briefed.
See generally Amended Complaint.
B. The Amended Complaint
The Amended Complaint is premised upon the same theory and foundational factual allegations as the original complaint, which the Court examined in detail in its First Order. To summarize, BHRS and Brio are competitors in the "water cooler and related hydration products marketplace" on Amazon.com. This case concerns the "star rating" that is associated with a product on Amazon.com, which reflects the average consumer rating of a particular product based upon product reviews posted by other Amazon.com consumers. BHRS alleges—based in large part upon a report by a third-party investigator —that Brio engaged in a fraudulent scheme to manipulate Amazon review ratings by enlisting individuals associated with Brio's management "to purchase products for the purpose of leaving a series of negative reviews of BHRS's products and post positive reviews of Brio's own brands of water cooler products on Amazon." With that general background, the Court will focus on the additional allegations in the Amended Complaint.
See First Order 3:1–4:8.
See Amended Complaint at ¶ 19.
See generally Report by Investigative Consultants, Inc. (the "IC Report") [ECF No. 26-1]. BHRS attached the IC Report to its Amended Complaint, whereas the original complaint included only references to the IC Report's findings.
Amended Complaint at ¶ 48; see also id. at ¶¶ 3, 40–47, 49–53, 74–79, & 87–93.
The focus of the Amended Complaint, according to BHRS, is the alleged practice by Brio of enlisting reviewers in an effort to manipulate the Amazon star rating, "not the content of the statements of the reviews themselves." The Amended Complaint includes additional allegations that: (1) Amazon reviews that appear to be submitted by "verified" purchasers can sometimes be fabricated; (2) consumers rely on the average star rating when making purchases; and (3) Brio fabricated Amazon Vine reviews which it then used on its website and the website of Walmart without disclosing (in addition to the fabrication) that the reviewers received free products in exchange for their reviews.
Opposition 2:6–11.
See id. at 2:12–17 (summarizing the additional allegations in the Amended Complaint).
See Amended Complaint ¶¶ 36–39.
See id. at ¶¶ 29–30.
According to BHRS, "[i]n order to facilitate reviews for products, Amazon provides sellers the opportunity to participate in its ‘Vine’ program. In exchange for a fee to Amazon, sellers can provide products to Amazon, who in turn, gives those products for free to customer reviewers to post reviews on Amazon." Id. at ¶ 54.
See id. at ¶¶ 54–61.
II. LEGAL STANDARD
A. Motion to Dismiss
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in a complaint. Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). In ruling on a Rule 12(b)(6) motion, "[a]ll allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party." Am. Family Ass'n v. City & County of San Francisco , 277 F.3d 1114, 1120 (9th Cir. 2002). Although a complaint attacked by a Rule 12(b)(6) motion "does not need detailed factual allegations," a plaintiff must provide "more than labels and conclusions." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
To state a plausible claim for relief, the complaint "must contain sufficient allegations of underlying facts" to support its legal conclusions. Starr v. Baca , 652 F.3d 1202, 1216 (9th Cir. 2011). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact) ...." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (citations and footnote omitted). Accordingly, to survive a motion to dismiss, a complaint "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face," which means that a plaintiff must plead sufficient factual content to "allow[ ] the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). A complaint must contain "well-pleaded facts" from which the Court can "infer more than the mere possibility of misconduct." Id. at 679, 129 S.Ct. 1937.
The Federal Rules of Civil Procedure require a party alleging fraud to "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). To plead fraud with particularity, the pleader must state the time, place, and specific content of the false representations. See Odom v. Microsoft Corp. , 486 F.3d 541, 553 (9th Cir. 2007). The allegations "must set forth more than neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about the statement, and why it is false." Vess v. Ciba-Geigy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotation marks omitted). The heightened pleading standard under Rule 9(b) applies to claims that are "grounded in fraud" or that "sound in fraud." Kearns v. Ford Motor Co. , 567 F.3d 1120, 1122 (9th Cir. 2009) (quoting Vess , 317 F.3d at 1102 ).
B. Leave to Amend
Pursuant to Rule 15(a), a district court "should freely give leave when justice so requires." The purpose underlying the amendment policy is to "facilitate decision on the merits, rather than on the pleadings or technicalities." Lopez v. Smith , 203 F.3d 1122, 1127 (9th Cir. 2000). Leave to amend should be granted unless the Court determines "that the pleading could not possibly be cured by the allegation of other facts." Id. (quoting Doe v. United States , 58 F.3d 494, 497 (9th Cir. 1995) ).
III. DISCUSSION
Brio moves to dismiss each of BHRS's claims for relief pursuant to Rule 12(b)(6). The Court, therefore, addresses the sufficiency of Brio's allegations with respect to each of BHRS's claims.
A. False Advertising in Violation of the Lanham Act
In its first claim for relief, BHRS avers that Brio engaged in false advertising in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Section 43(a) of the Lanham Act "authorizes suit against persons who make false and deceptive statements in a commercial advertisement about their own or the plaintiff's product." Jarrow Formulas, Inc. v. Nutrition Now, Inc. , 304 F.3d 829, 835 (9th Cir. 2002). A claim for false advertising under § 43(a) has five elements:
See Amended Complaint ¶¶ 74–83.
(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused the false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products.
Skydive Arizona, Inc. v. Quattrocchi , 673 F.3d 1105, 1110 (9th Cir. 2012) (citing 15 U.S.C. § 1125(a)(1)(B) ).
Because BHRS alleges that Brio placed "false," "fraudulent," and "misleading" customer reviews on Amazon.com as part of the alleged "false advertising scheme," BHRS's false advertising claim sounds in fraud, and, therefore, is subject to the heightened pleading requirements of Rule 9(b). See Kearns , 567 F.3d at 1122. Accordingly, BHRS must allege the "who, what, when, where, and how" of the alleged fraud. Vess , 317 F.3d at 1106.
See id. at ¶¶ 75 & 76.
Id. at ¶ 81.
In its First Order, the Court explained that BHRS failed to plead sufficient facts to establish the first element of its claim under § 43(a) of the Lanham Act—"a false statement of fact by the defendant in a commercial advertisement about its own or another's product," Skydive Arizona , 673 F.3d at 1110 (emphasis added)—because BHRS did not allege that Brio itself made the statements at issue and because BHRS did not plead enough facts plausibly to connect the non-party reviewers to Brio, such as would support an inference that the third parties were acting on behalf of Brio.
See First Order 9:20–11:7.
With those deficiencies in mind, in its Amended Complaint, BHRS attempts to shift the focus to the alleged broader scheme by Brio to manipulate the average star rating for the products. BHRS alleges that Brio's use of purportedly fake reviews results in a false and misleading star rating. BHRS's contention in this regard seems to be that the star rating is itself a "commercial advertisement" for the purpose of the Lanham Act. However, these allegations still are not enough to state a plausible claim for false advertising under the Lanham Act, for the same reasons detailed in the Court's First Order.
See Amended Complaint ¶ 76; Opposition 7:21–9:8.
BHRS's theory that the star rating itself constitutes a commercial advertisement by Brio is not persuasive. To constitute commercial advertising or promotion, a statement of fact must be:
(1) commercial speech; (2) by the defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a "classic advertising campaign," but may consist instead of more informal types of "promotion," the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute "advertising" or "promotion" within that industry.
Coastal Abstract Service, Inc. v. First American Title Insurance Co. , 173 F.3d 725, 735 (9th Cir. 1999) (quotations omitted; emphasis added). In support of its theory that manipulated star ratings are actionable commercial advertising under the Lanham Act, BHRS cites Grasshopper House, LLC v. Clean and Sober Media, LLC , 2018 WL 6118440 (C.D. Cal. July 18, 2018), and Interlink Prods. Int'l, Inc. v. F & W Trading LLC , 2016 WL 1260713 (D.N.J. Mar. 31, 2016). Putting aside that this Court is not bound by the decisions of other district courts, Grasshopper and Interlink are each distinguishable from this case, particularly with respect to the first element of a claim under § 43(a) of the Lanham Act.
In each of those case cases, the plaintiff alleged that the defendant itself, or through its paid agents , made false statements in commercial advertisements. See Grasshopper , 2018 WL 6118440, at *1–*2 & *5–*7 (allegations that defendants falsely attributed one-star rating of the plaintiff's facility to the plaintiff's own clients, without disclosing that the review publication was owned by one of the defendants, were sufficient to state a claim under the Lanham Act); Interlink , 2016 WL 1260713, at *2 & *9 (allegations that defendants engaged in "massive" and "continuous ratings manipulation" by sending "excessive quantities of free samples to professional reviewers" resulting in numerous fake or biased reviews were sufficient). In contrast, here, BHRS does not allege any facts plausibly to show that Brio itself posted or is responsible for the content of the allegedly misleading reviews. Nor does BHRS allege a "massive" scheme of ratings manipulation involving an "excessive" number of paid reviews. Cf. Interlink , 2016 WL 1260713, at *2 & *9 ; see also AlphaCard Sys. LLC v. Fery LLC , 2020 WL 4736072, at *1 & *3 (D.N.J. Aug. 14, 2020) (denying motion to dismiss false advertising claim where the plaintiff alleged that the defendant "placed hundreds of phony customer reviews on its products, which purport to state customers’ honest opinions even though reviewers did not purchase or honestly evaluate the product"). As explained in the Court's First Order, BHRS does not allege facts plausibly to show that any of the individual reviewers were controlled or paid by Brio, or otherwise acting on behalf of Brio. And BHRS has not alleged additional facts to support any inference in that regard. In the absence of such allegations, BHRS fails to state a claim for false advertising under § 43(a) of the Lanham Act.
See First Order 10:13–11:7.
To the extent that BHRS's false advertising claim is based upon the content of the allegedly misleading reviews cited in the Amended Complaint, the Court finds that the reviewers’ statements are classic statements of opinion, and, therefore, the reviews are not actionable. Cf., e.g., Newcal Industries, Inc. v. Ikon Office Solution , 513 F.3d 1038, 1052–53 (9th Cir. 2008) (affirming district court's finding that the defendant's statement that it would "deliver ‘flexibility’ in [its] ‘cost-per-copy’ contracts" was puffery); JIVE Commerce, LLC v. Wine Racks Am., Inc. , 2018 WL 3873675, at *2–*3 (D. Utah Aug. 15, 2018) (evaluating similar complaint allegations and finding that "the Court has no information that would suggest the reviews are actionable under the Lanham Act"). Like the original Complaint, each of the customer reviews cited in the Amended Complaint contains vague, generalized statements of opinion about the quality of, and the respective reviewers’ experience with, the BHRS product—not statements of fact about the product.
Although BHRS attempts to shift the focus away from the content of the reviews at issue, see Opposition 7:21–25, the Amended Complaint includes screenshots of three negative reviews of BHRS's products, which reviews BHRS alleges were connected to Brio, see Amended Complaint ¶¶ 49-51. Notably, though, BHRS does not allege that these reviews are fake. To the contrary, BHRS explicitly acknowledges that these reviewers purchased products from BHRS. Id. at ¶ 50; cf. id. at ¶¶ 36–39. And, as explained above, BHRS does not allege sufficient facts to support a plausible inference that these reviewers are part of Brio's alleged false advertising scheme.
See First Order 11:8–12:15.
Accordingly, the Court GRANTS Brio's Motion with respect to BHRS's first claim for relief. Furthermore, in view of the fact that BHRS was already granted leave to amend, and because the Court finds that the Amended Complaint does not cure the pleading deficiencies identified in the Court's First Order, granting leave to amend again would be futile. See Lopez , 203 F.3d at 1127.
B. Violation of California's Unfair Competition Law
The second claim for relief in the Amended Complaint is for unfair competition in violation of California's Unfair Competition Law ("UCL"). California's UCL prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Cal. Bus. & Prof. Code § 17200. BHRS alleges that Brio engaged in unfair competition by, "inter alia , making representations and omissions of material facts in causing and orchestrating fraudulent Amazon.com star ratings ...."
Id. at ¶¶ 84–98.
Id. at ¶ 88.
Because BHRS alleges a "unified course of fraudulent conduct," BHRS is required to plead its claims under the unlawful and unfair prongs of the UCL with particularity. See Fed. R. Civ. P. 9(b) ; Kearns , 567 F.3d at 1122, 1126–27 (if "the claim is said to be ‘grounded in fraud’ ... the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)").
See Opposition 13:16–17 ("Plaintiff alleges claims for violations of the unlawful and unfair prongs of the statute.").
The Court addresses the sufficiency of BHRS's allegations under each of these prongs in turn. 1. "Unfair" Prong
The "unfair" prong of the UCL prohibits a business practice that "violates established public policy or ... is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits." McKell v. Wash. Mut., Inc. , 142 Cal. App. 4th 1457, 1473, 49 Cal.Rptr.3d 227 (2006). The California Supreme Court has held that "[w]hen a plaintiff who claims to have suffered injury from a direct competitor's ‘unfair’ act or practice invokes section 17200, the word ‘unfair’ in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co. , 20 Cal. 4th 163, 187, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999).
BHRS's claim under the "unfair" prong of the UCL fails for the reasons discussed in the preceding section. Although BHRS sufficiently alleges that BHRS and Brio are direct competitors, BHRS does not aver (or argue) that Brio's alleged misconduct threatens an incipient violation of an antitrust law or has effects comparable to a violation of an antitrust law. The Amended Complaint does not state sufficient facts to show that the alleged false statements were made by Brio, or by individuals who received compensation (monetary or otherwise) in exchange for their reviews. Rather, BHRS merely alleges, in conclusory fashion, that Brio's conduct "is substantially injurious to BHRS, competitors, and the consuming public, offends public policy, and is immoral, unethical, oppressive, and unscrupulous ...." Such allegations are mere "labels and conclusions," which, absent supporting evidentiary facts, are not sufficient to survive a motion under Rule 12(b)(6). Twombly , 550 U.S. at 555, 127 S.Ct. 1955.
Id. at ¶ 92. The Court explained in its First Order that this conclusory allegation, which BHRS left unchanged in the Amended Complaint, is not sufficient to plead a claim under the "unfair" prong of the UCL. See First Order 15:16–21.
Accordingly, the Court finds that BHRS has not alleged sufficient facts to state a plausible claim for relief under the UCL's unfair prong.
2. "Unlawful" Prong
Under the UCL's "unlawful" prong, "[t]he UCL ‘borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.’ " Wilson v. Hewlett–Packard Co. , 668 F.3d 1136, 1140 (9th Cir. 2012) (quoting Cel-Tech , 20 Cal. 4th at 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 ).
Here, BHRS alleges that Brio has violated the unlawful prong of the UCL through Brio's violation of the UCL itself and Brio's breach of Amazon's Seller Agreement (BHRS's third claim for relief). However, as stated in the preceding section, the Court finds that BHRS has not alleged sufficient facts to state a plausible claim for relief under § 17200 of the California Business and Professions Code. Furthermore, as explained below, BHRS is no longer pursuing its claim for breach of contract. Accordingly, BHRS cannot state a claim under the UCL's unlawful prong.
The Amended Complaint also alleges that Brio's conduct violates "28 U.S.C. § 1125," id. at ¶ 89; however, BHRS likely meant to cite 15 U.S.C. § 1125 (i.e. , the Lanham Act), because title 28 of the United States Code does not contain a § 1125 (title 28 governs the judiciary and judicial procedure). Regardless, the Court already determined, in the preceding section, that the Amended Complaint fails adequately to allege a claim under the Lanham Act.
Based upon the foregoing, the Court GRANTS Brio's Motion to Dismiss BHRS's claim for violation of the UCL. For the reasons explained with respect to BHRS's claim for false advertising, the Court finds that granting leave to amend again would be futile. See Lopez , 203 F.3d at 1127.
C. Breach of Contract—Third Party Beneficiary
BHRS indicates in its Opposition that it has agreed to dismiss its breach of contract claim "without prejudice to Plaintiff's ability to raise any violations of the Amazon seller policies with Amazon as part of any informal process provided by Amazon in those agreements."
Opposition 18:9–14.
Accordingly, the Court GRANTS Brio's Motion to Dismiss BHRS's claim for breach of contract, without prejudice to BHRS's right to pursue that claim in connection with any process provided by Amazon for resolving such claims.
IV. CONCLUSION
For the reasons set forth above, the Court hereby ORDERS as follows:
1. Brio's instant Motion to Dismiss is GRANTED in its entirety, without leave to amend.
2. The Court makes no findings or conclusions with respect to BHRS's right to raise its breach of contract claim through Amazon's dispute resolution process.
3. The Clerk is DIRECTED to close this case.