Rebecca Tushnet

Tortilla Factory, LLC v. GT’s Living Foods, LLC, No. CV
17-7539 FMO (GJSx), 2023 WL 6296900 (C.D. Cal. Sept. 27, 2023)

Interesting bench trial result that finds no proximate
causation of plaintiff’s injury from defendant’s false advertising. Despite finding
the plaintiff’s expert’s testimony about sugar and alcohol levels in
defendant’s kombucha “credible and compelling,” lack of harm doomed its case.
(But that suggests that some AG might want to get involved, especially as to
whether GT should be selling its products without the alcohol warning label.)

The basic allegations: defendant’s kombucha had much higher
levels of sugar and alcohol than advertised, allowing defendant to sell it
without an alcohol warning and to get consumers who didn’t want those levels of
sugar and alcohol to choose it. Tortilla Factory’s Kombucha Dog has
approximately 1.25% alcohol by volume and is sold as an alcoholic beverage,
with a government-required warning label. It also uses pictures of rescue dogs
on the label. And Tortilla Factory entered into an exclusive distribution deal
that was a disaster—the distributor let lots of accounts die.

Meanwhile, GT is the leading kombucha seller in the market,
with about 50% market share as of 2018, but there are about 300+ kombucha
brands in the US, with California the most competitive state given lots of
local brands.

Tortilla Factory simply couldn’t show the requisite harm.
Although it argued that it expended significant amounts on corrective
advertising about authentic kombucha and sugar, the court found that it was
just typical advertising “undertaken by any small business entering a
competitive market.”

And more generally, the misrepresentations about the amount
of alcohol in, and lack of a government alcohol warning label on, certain of
GT’s products would not have decreased Tortilla Factory’s sales. A customer who
wanted a product that didn’t have enough alcohol to need a label would have
instead purchased “one of dozens of available nonalcoholic kombucha drinks in
the market.” Tortilla Factory’s own expert testified that the alcohol label was
very important to consumers and was a drag on sales. And his survey was suspect
because he showed consumers the front of a Kombucha Dog bottle with images of
rescue dogs, but only the back and side of GT’s Classic bottle, and conceded
that “the photo of a cute dog could inject bias into the result[.]”

Because the alcohol part was so important, the sugar
misrepresentations became unimportant: again, a consumer who wanted lower sugar
content would have chosen a different nonalcoholic kombucha beverage even if
GT’s had been properly labeled, and there was no evidence about consumer
reactions to sugar labels.  

Evidence about Tortilla Factory’s prior customers who
eventually sold GT’s also didn’t show harm causation from falsity, as opposed
to other factors like the disaster distributor or GT providing special flavors
(also, GT sold kegs to some customers, and the evidence of falsity related to
bottles, not kegs; I don’t know the science here so I don’t know if that would
likely make a difference).

from Blogger http://tushnet.blogspot.com/2023/10/no-injury-to-alcoholic-kombucha.html

HomeLight, Inc. v. Shkipin, No. 22-cv-03119-PCP, 2023 WL
6284738, — F.Supp.3d —- (N.D. Cal. Sept. 27, 2023)

HomeLight runs an online platform that matches real estate
agents with homebuyers and sellers and requires any agent who accepts a
referral resulting in a sale to pay 25% of their commission to HomeLight.
Shkipin operates an alternative agent-matching platform, HomeOpenly, that does
not charge referral fees and instead obtains revenue from advertising and
auxiliary services. HomeLight sued him for false advertising and trademark violations,
and Shkipin counterclaimed under federal antitrust law, federal false
advertising law, and California’s UCL. I will only discuss the (unsuccessful)
advertising-related claims.

Proximate cause: None of the challenged statements allegedly
disparaged HomeOpenly, so Shkipin needed to allege how deceptive statements
about HomeLight directed at shoppers on HomeLight’s own website “necessarily
caused advertisers not to buy ads from HomeOpenly.” Even assuming a there is a
direct relationship between the number of HomeOpenly visitors and its ability
to sell ads, and that HomeLight’s deceptive statements resulted in some
reduction in the number of shoppers visiting HomeOpenly’s website, this was “too
attenuated to establish proximate cause.” This was especially true given the
countercomplaint’s other plausible explanation for why online home shoppers
might find HomeLight’s website but not HomeOpenly’s: HomeLight’s heavy spending
on various forms of online and TV advertising that Shkipin characterized as
“highly effective.”

Separately, he didn’t properly allege
falsity/misleadingness. Challenged statement: “Our service is 100% free, with
no catch. Agents don’t pay us to be listed, so you get the best match.” The
countercomplaint alleged that the failure to mention that partner agents do pay
referral fees is a “deceptive omission.” But this didn’t plausibly plead that
the omission deceived a substantial segment of HomeLight’s audience, especially
since the counterclaim included a HomeLight webpage specifying that “HomeLight
receives a portion of the agent’s commission as a referral fee.”

Challenged statement: “HomeLight is operated in compliance
with all state and federal housing laws.” Not actionable because it includes a
legal conclusion rather than a statement of fact.

Challenged statement: “The agents we recommend on HomeLight
typically can save you thousands on your home purchase.” Not a promise of
specific results.

Challenged statements such as: “We’ve designed a solution
that allows you to sort through over 2 million agents from all of the top real
estate brokerages in order to find the perfect one for you.” No allegations of
facts contradicting transaction/agent numbers and the rest was subjective
non-actionable puffery.

from Blogger http://tushnet.blogspot.com/2023/10/proximate-causation-isnt-as-easy-when.html

Novation Solutions, Inc. (o/a DealMaker) v. Issuance Inc., 2023
WL 6373871, No. 2:23-cv-00696-WLH-KSx (C.D. Cal. Aug. 16, 2023)

DealMaker is a financial technology company that provides
its users with the ability to raise capital by conducting investment offerings
via its online platform. Issuance is a competitor: a financial technology
company with a retail capital raising and investment processing platform. Defendant
Marble is Issuance’s co-founder and chief executive officer.

DealMaker alleged that defendants stole its trade secrets
and also alleged violation of state and federal false advertising law. Shortly
after DealMaker first sued, Marble allegedly “embarked on a marketing campaign
that included disparaging remarks about DealMaker” and its products, claiming
falsely that:

These statements were allegedly made at an event in Miami
whose recording was uploaded to YouTube, as well as in a slide deck that was
uploaded to Deal Night’s website in accordance with Issuance’s marketing
agreement with Deal Night. The slide deck had disclaimer language that the
information on the slides was not complete, and that the slides contained
forward-looking statements.

challenged representations in slide form

For purposes of a preliminary injunction motion, the court
first considered literal falsity.

Challenged claim: DealMaker’s customers do not retain
ownership over their own data.  DealMaker
argued that the lack of any mention of the transfer of ownership of
confidential data in its TOS indicates that clients own their own data, while
defendants argued that the absence of any affirmative discussion was itself
evidence of lack of client ownership, whereas Issuance’s own terms promised
that the customer “owns and shall remain the sole owner” of its information. Defendants
pointed to DealMaker’s TOS provision that it could “use” client’s data for
DealMaker’s marketing purposes, and anecdotal evidence from a prior DealMaker
customer indicating that DealMaker “exploited and misused the customer’s
investor list for the purpose of contacting its investors to market other
companies’ securities offerings listed through DealMaker. DealMaker noted that
Issuance’s own terms include a provision that allows Issuance to license its
data.

This wasn’t literal falsity, given the silence of the
DealMaker TOS.

Challenged claim: DealMaker offers the same products and
services as [Issuance] at higher prices (8-10% as compared to 4-5%) and DealMaker’s
fees are charged as a percentage of capital raised. DealMaker argued that its
offers weren’t the same as Issuance’s so one-to-one comparisons were false, and
that its fees don’t depend on a percentage of capital raised. Defendants
offered examples of contracts that, they argued, had a fee structure of 8-10%.  DealMaker said those were contracts with DealMaker
Securities LLC, a registered broker dealer, which is a separate legal entity
and not a party to this lawsuit, and that its fees may be higher because it
offers additional services to its clients that Issuance does not. This was not
enough for literal falsity, since the slides didn’t claim that the parties
offered the same products. Also, a potentially reasonable reading of the
statement was that in the aggregate, DealMaker’s fees equate to 8-10% of the
capital it raises, rather than being explicitly a statement that its fees were
based on a percentage of what was raised. Ultimately, DealMaker didn’t show
that was false at this stage.

Challenged claim: DealMaker’s platform does not offer “checkout
in under one minute” to its customers, while Issuance’s platform does: This was
likely explicitly false. The slide clearly compared the parties’ platforms.
DealMaker’s evidence showed that checkout on its platform in less than a minute
was possible. This was a specific and measurable advertisement claim of product
superiority based on product testing and not puffery.

Challenged claim: DealMaker’s publicly disclosed “street”
valuation is $200 million.

Marble explained that he arrived at the $200 million
valuation by multiplying DealMaker’s $20 million estimated revenue for 2022 by
a multiplier of ten. DealMaker argued that as a private company, it does not
have a public valuation and thus this number is fabricated and false. Defendants
responded that the slide proposed a “street estimate,” which is an industry
term for an unofficial estimate and not a “publicly disclosed valuation” as
suggested by DealMaker.

“Street estimate” was sufficiently ambiguous that it was
susceptible to defendants’ interpretation.

Deception would be presumed for literally false statements. Also,
the statement was “published and promoted on an investor industry website,
presented at a forum focused on connecting potential investors and company
founders, and was directed at an audience of potential investors attending
industry events where potential clients in this industry are the most
susceptible to being deceived by the false statements.” This also took care of
materiality.

Injury can be “generally presumed” when the parties “are
direct competitors and defendant’s misrepresentations has a tendency to mislead
consumers.” This presumption was not rebutted.

In addition, irreparable harm was presumed from likely
success under the TMA. The other factors also favored a preliminary injunction
for the “under a minute” statement.

from Blogger http://tushnet.blogspot.com/2023/10/literal-falsity-of-claim-that-website.html

Dental Recycling North America, Inc. v. Stoma Ventures, LLC,
2023 WL 6389071, No. 4:23 CV 670 CDP (E.D. Mo. Oct. 2, 2023)

The parties compete in the market for amalgam capture
devices, which remove fillings (or pieces thereof) from dental office
wastewater. This is required by the EPA because fillings can contain toxic
mercury. EPA regs say that dental offices may comply by using amalgam capture
devices, “separators” and removal devices “other than separators.” Both options
require at least 95% removal efficiency; the former must use ANSI testing,
while the latter must use sampling averages. There’s no premarket approval.

Plaintiff alleged that Stoma falsely advertised that its
Capt-all device, which fits onto the end of a high volume evacuator valve, is
an amalgam separator and EPA compliant. However, it allegedly only treats
amalgam process wastewater that passes through its device, rather than all
potential sources of amalgam process wastewater in a dental office, which is
insufficient.

Stoma argued that representations about legality/legal
compliance were inactionable opinion. Prior cases have so found, unless there
was a clear statement to the contrary from a relevant authority (including a very
clear statute), or unless there was no good-faith belief in the statement about
legality.

Here, the plaintiff alleged that Stoma made/caused others to
make false statements that the Capt-all was tested and found to be an amalgam
separator when it knew that Capt-all did not meet the regulatory definition of
an amalgam separator. Stoma conceded that the Capt-all is not an amalgam
separator; the knowing falsity exception could apply, even if statements about
Capt-all being “compliant” with EPA regulations may not be actionable.

from Blogger http://tushnet.blogspot.com/2023/10/knowingly-false-statement-of-regulatory.html