Nutrition Distribution, LLC v. S. Sarms, Inc.

20 Cal.App.5th 117

228 Cal.Rptr.3d 737

NUTRITION DISTRIBUTION, LLC, Plaintiff and Respondent,

v.SOUTHERN SARMS, INC., Defendant and Appellant.

B280983

Court of Appeal, Second District, Division 7, California.

Filed January 31, 2018

Lewis Brisbois Bisgaard & Smith, Arezoo Jamshidi, Catherine M. Asuncion, San Diego, Daniel C. DeCarlo, Josephine Brosas, and Griffen J. Thorne, Los Angeles, for Defendant and Appellant.

Tauler Smith, Robert Tauler, Los Angeles, and Lisa M. Zepeda, for Plaintiff and Respondent.

PERLUSS, P. J.

Code of Civil Procedure section 128.5¹ authorizes a trial court to award sanctions for bad faith actions or tactics that are frivolous or solely intended to cause delay. Pursuant to former subdivision (f) of section 128.5, effective from January 1, 2015 until amended by urgency legislation enacted August 7, 2017 (former subdivision (f)), any such sanctions had to be imposed "consistently with the standards, conditions, and procedures set forth in subdivisions (c),(d), and (h) of Section 128.7."

Ruling that former subdivision (f) incorporated the 21-day safe harbor notice-and-waiting period of section 128.7, subdivision (c)(1), the trial court denied Southern SARMs Inc.'s postjudgment motion for sanctions against Nutrition Distribution, LLC because Southern SARMs had failed to give Nutrition Distribution the required notice. We affirm. As reflected in the plain language and legislative history of former subdivision (f), and confirmed by the August 2017 amendments to that provision, a 21-day waiting period applies to a motion for sanctions under section 128.5 that, as here, is directed to allegedly improper actions or tactics that can be withdrawn or appropriately corrected.

FACTUAL AND PROCEDURAL BACKGROUND

1. Nutrition Distribution's Pleadings

In a complaint filed in April 2016 Nutrition Distribution, LLC, dba Athletic Xtreme, a manufacturer and marketer of nutritional supplements, sued Southern SARMs, a competing nutritional supplement company, for unfair competition ( Bus. & Prof. Code, § 17200 et seq. ) and false advertising ( Bus. & Prof. Code, § 17500 et seq. ). Nutrition Distribution alleged Southern SARMs had misbranded and unlawfully marketed its product (MK-2866) Ostarine, which contained as its active ingredient a selective androgen receptor modulator (SARM). According to Nutrition Distribution's pleading, "SARMs, like Defendant's Ostarine Product, are synthetic drugs with similar effects to illegal anabolic steroids." Specifically, Nutrition Distribution alleged, although Southern SARMs labeled its product as not intended to treat, cure or diagnose any condition or disease and not for human consumption, it simultaneously marketed the product on its website and otherwise as a new miracle dietary supplement to bodybuilders and other competitive athletes to enhance their physiques, promising, for example, lean mass increase and accelerated fat loss in an easy-to-dose oral form. According to Nutrition Distribution, Southern SARMs also misrepresented that its Ostarine product affords similar benefits to testosterone and other anabolic steroids without the negative side effects.

As remedies for these alleged violations of the unfair competition and false advertising laws, Nutrition Distribution sought compensatory damages, profits earned by Southern SARMs from its misleading marketing practices, restitution of all of Southern SARMs's "ill-gotten gains," preliminary and permanent injunctive relief prohibiting Southern SARMs from producing, licensing, marketing and selling not only its Ostarine product but also any other product containing selective androgen receptor modulators, and attorney fees.

After the parties met and conferred to discuss Southern SARMs's contemplated motion to strike and demurrer to the complaint, Nutrition Distribution filed a first amended complaint, which contained the same two causes of action and still requested Southern SARMs's profits, restitution of its purportedly ill-gotten gains and the broad preliminary and permanent injunctive relief set forth in the original complaint. The amended pleading, however, deleted the prayer for compensatory damages and attorney fees. It also omitted allegations that Southern SARMs's marketing of its Ostarine product without any label statements on its packages or containers violated the federal Food, Drug, and Cosmetic Act, averring instead that the product was currently under investigation by the Food and Drug Administration as a new pharmaceutical drug.

2. Southern SARMs's Demurrer and the Trial Court's Ruling

Southern SARMs demurred to the first amended complaint, arguing Nutrition Distribution was not entitled to any of the relief it had demanded. First, as to its request for a monetary recovery, Southern SARMs asserted that Nutrition Distribution was seeking standard tort damages, which are not recoverable in an action for unfair competition or false advertising. Nutrition Distribution was not entitled to restitution or restitutionary disgorgement, which are ordinarily available remedies, Southern SARMs contended, because it had failed to allege Southern SARMs had wrongfully acquired money or property in which Nutrition Distribution had a vested interest. Second, as to the prayer for injunctive relief, Southern SARMs argued the request by Nutrition Distribution was overly broad, seeking a wholesale proscription of Southern SARMs's production, marketing or sales of any product containing selective androgen receptor modulators rather than prohibiting the allegedly false or misleading advertising of Ostarine. In the absence of a right to the relief sought, Southern SARMs contended, Nutrition Distribution had failed to plead viable causes of action.

The final section of Southern SARMs's memorandum of points and authorities in support of its demurrer argued that Nutrition Distribution's assertion of frivolous claims and bad faith conduct warranted imposition of sanctions pursuant to sections 128.5 and 128.7, subdivision (c)(2). Counsel for Southern SARMs insisted he had repeatedly pointed out that Nutrition Distribution was not entitled to the relief it sought and its pleadings were therefore legally insufficient. Accordingly, in addition to sustaining its demurrer in its entirety, Southern SARMs requested that the court issue an order to show cause to Nutrition Distribution and its counsel as to why sanctions should not be awarded.

After full briefing and oral argument, the court sustained Southern SARMs's demurrer without leave to amend.² No minute order reflecting that ruling or the court's reasoning is included in the record on appeal, and no reporter's transcript of the hearing has been provided. However, the notice of ruling prepared by counsel for Southern SARMs includes the following statement, "The Court denied Defendant's request for sanctions but indicated that Defendant could file a separate motion for sanctions if Defendant chooses." A judgment and order of dismissal was entered on September 15, 2016.

3. Nutrition Distribution's Appeal of the Judgment

Nutrition Distribution appealed the order of dismissal. We affirmed, holding Nutrition Distribution had failed to allege facts that would entitle it to restitution under the unfair competition or false advertising laws or that would justify the broad injunctive relief it sought prohibiting all production and sales of any product containing selective androgen receptor modulators. ( Nutrition Distribution, LLC v. Southern SARMs, Inc. (Nov. 28, 2017, B278132) 2017 WL 5712760.)

4. Southern SARMs's Postjudgment Motion for Sanctions

On November 17, 2016, more than six weeks after Nutrition Distribution had filed its notice of appeal, Southern SARMs moved for sanctions pursuant to section 128.5 against Nutrition Distribution and its counsel.³ As grounds for sanctions Southern SARMs argued Nutrition Distribution had filed its complaint without pleading facts demonstrating its entitlement to the relief sought and, notwithstanding Southern SARMs's attempts to meet and confer in good faith, Nutrition Distribution persisted in including the same unwarranted requests in its first amended complaint. Southern SARMs also explained that Nutrition Distribution had filed a series of similar frivolous lawsuits across the country, demonstrating its intent to drive its competitor out of business. In addition, Southern SARMs's counsel complained that Nutrition Distribution's lawyer had repeatedly insulted him and called him unethical. In discussing the standards for an award of sanctions under section 128.5 in its memorandum in support of the motion, Southern SARMs quoted San Diegans for Open Government v. San Diego (2016) 247 Cal.App.4th 1306, 1317, 203 Cal.Rptr.3d 34 ( San Diegans for Open Government ), which had held, "[A] party filing a sanctions motion under section 128.5 does not need to comply with the safe harbor waiting period described in section 128.7, subdivision (c)(1)."

In opposition Nutrition Distribution argued, because the motion was filed after the court had entered judgment dismissing the action, it was untimely. It also asserted its lawsuit had merit, there was factual and legal support for its claims for relief, and the action had not been initiated in bad faith or for an improper purpose.

In a reply memorandum Southern SARMs responded, in part, that the case law cited by Nutrition Distribution in support of its untimeliness argument concerned sanctions motions under section 128.7 and was based on the 21-day safe harbor waiting provision in that section. It again quoted the holding of San Diegans for Open Government , supra , 247 Cal.App.4th at page 1317, 203 Cal.Rptr.3d 34 that no comparable waiting period applied to a motion under section 128.5.

Following argument the court denied the motion. The minute order, entered January 9, 2017, states, "The motion for sanctions is called and the motion is denied pursuant to the Safe Harbor Rule." Southern SARMs filed a timely notice of appeal.

DIS...