court awards sanctions for misrepresenting website as independent review site in false advertising case

Purple Innovation, LLC v. Honest Reviews, LLC, 2018 WL
840035, No. 17-cv-138 (D. Utah Feb. 12, 2018)
A rare sanctions order in a false advertising case, in which
the court grants sanctions based on the defendants’ submission of misleading
and false statements to the court in opposing PI’s request for preliminary
injunction. PI sells bed-in-a-box mattresses and other bedding products and relies
strictly on e-commerce, meaning that online comment and review websites can
have a significant impact on its business. A new mattress review
website——owned by Honest Reviews and operated by its
sole owner, Monahan, began to post reviews.  The HMR website repeatedly stated that it wasn’t
influenced by any mattress company and that it didn’t receive financial
compensation for its reviews, e.g., HMR was “free from corporate or
conglomerates…[that] silence or shape editorial narratives and truths,” and
HMR posts “have total editorial independence” for which “[n]o one has
HMR’s reviews or “articles” about PI’s products suggested a
link between a white powder used on some of Plaintiff’s products and
cancer-causing agents, for example comparing the powder to a “ground
down…plastic mustard container” or “glass coke bottle,” which consumers will
inhale every night for “eight to ten hours.” PI received low marks on the HMR
site, including an image of a large red “X,” while its competitors, including defendant
GhostBed, received favorable ratings. 
PI’s lawsuit alleged that Monahan, the sole owner and
operator of HMR, was closely affiliated with GhostBed, making the purported
“reviews” actually commercial advertising and promotion that “materially
misrepresented the nature, characteristics, and qualities” of PI’s products,
while failing to disclose the close affiliation with its competitor. The court
initially denied a motion for a TRO, then granted it after PI showed multiple
attempts to notify defendants of the case, “including indications that Defendants
had received actual notice and that Defendants appeared to be avoiding service
of process.”
PI then moved for contempt, based on an alleged failure to
comply with the TRO.  Defendants opposed,
submitting declarations by Marc Werner (CEO of GhostBed) and Ryan Monahan. Werner
stated that “GhostBed does not have any affiliation whatsoever with
co-defendants Honest Reviews LLC or Mr. Monahan,” with no control or
compensation relationship with 
Further, Werner stated, when Monahan identified himself on Twitter and
LinkedIn as “Chief Brand Officer” of GhostBed, he did so “mistakenly.”  Werner acknowledged that GhostBed used Achieve
Marketing for branding and marketing consultation services and that “[i]n the
past, Achieve used another entity, Social Media Sharks, to consult on online
presence issues for its clients, including GhostBed.” Social Media Sharks was
associated with Monahan, but Werner did not acknowledge any current
relationship between GhostBed and Social Media Sharks or GhostBed and Monahan.  Monahan’s declaration was similar, though it
stated that Achieve used Social Media Sharks to provide contracted services
with GhostBed. Monahan stated that the website had a single source of income, Google
At the hearing, Monahan’s counsel “strongly argued that
Monahan was an independent journalist entitled to full protection under the
First Amendment,” and that Monahan wasn’t hiding his status as a contractor. GhostBed’s
counsel also stated that no relevant business relationship existed between
Monahan and GhostBed, stating that “Monahan is a marketing consultant and he
works for many, many organizations and clients …, including GhostBed[.]” Based
on these representations, the court dissolved the TRO.
PI later renewed a motion for a preliminary injunction with
a newly obtained declaration from GhostBed’s former Director of Marketing,
Calisha Anderson, who “confirmed the bulk of Plaintiff’s suspicions regarding
the relationship between Monahan and GhostBed.” 
She declared that, shortly after beginning her new job, she learned she
had “very little actual authority for GhostBed’s marketing” and Monahan “was
the real ‘Director of Marketing.’ ” Monahan controlled the GhostBed website,
was active in participating in staff meetings, used a email
address, held himself out as the Chief Brand Officer, and was able to veto
Anderson’s decisions.  Anderson also stated
that GhostBed made similar claims about the powder on PI beds.   
Monahan’s counsel called the declaration “lies” and expressed
hope that she’d be charged with perjury when he showed that she lied.  The court decided to hold an evidentiary
hearing. That hearing established, among other things, that Monahan continued to
provide extensive marketing services to GhostBed, for which Social Media Sharks
received $10,000 per month, half of which went to Monahan; he also helped
GhostBed place competitive ads that targeted PI. The court concluded that
Monahan and Werner had materially misrepresented the relationship between HMR
and GhostBed, as well as Monahan’s status as an independent journalist. Anderson’s
credible testimony wasn’t seriously challenged by cross-examination. The court
thus entered a preliminary injunction, after which PI moved for sanctions.
In determining the appropriateness of sanctions, courts consider
“(1) the degree of actual prejudice to the [party requesting sanctions], (2)
the degree of interference with the judicial process, (3) the litigant’s
culpability, (4) whether the litigant was warned in advance that dismissal was
a likely sanction, and (5) whether lesser sanctions would be effective.” The
court found significant prejudice here—the dissolution of a TRO, depriving PI
of the injunctive relief it deserved and requiring PI to spend time and
resources to get its injunction a second time. There was also “substantial” interference
with the judicial process here was substantial. “Defendants and their counsel
adamantly defended misleading representations that Monahan and GhostBed had no
meaningful association and that Monahan was a consumer journalist entitled to
the fullest possible protection of the First Amendment,” resulting in a full
day evidentiary hearing to determine the truth.
Defendants now conceded that the misrepresentations “lacked
the level of candor and attention to detail necessary to ensure that all of the
material facts were clearly stated and understood by all parties and the Court”
but claimed they were “made in the heat of battle.” But “Monahan, Werner, and
counsel for each were given numerous opportunities” before the hearing to
correct and clarify previous, misleading testimony, but they “doubled down”
instead. There was no explicit advance warning that misleading the court by
sworn testimony was sanctionable conduct, but they should have known that, and
Monahan’s lawyer’s statements about perjury demonstrated his clear
understanding of the potential results of submitting a false declaration to the
court.  “Indeed, … the misrepresentations
by Werner and Monahan were sufficiently egregious that perjury prosecutions
would, and perhaps should be, an appropriate consideration.”
Given the egregious nature of Werner’s misrepresentations,
the court struck GhostBed’s counterclaims as an appropriate sanction, along
with the award of PI’s reasonable attorneys’ fees and costs expended in
pursuing its second motion for a preliminary injunction and the sanctions
motion, shared jointly between Monahan/HMR and GhostBed. “The court will also
issue an adverse jury instruction if deemed appropriate when this case goes to

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