State ex rel. Rosenblum v. Living Essentials, LLC

313 Or.App. 176

497 P.3d 730

STATE EX REL. Ellen F. ROSENBLUM, in her official capacity as Attorney General for the State of Oregon, Plaintiff-Appellant Cross-Respondent,

v.LIVING ESSENTIALS, LLC, a Michigan limited liability company; and Innovation Ventures, LLC, a Michigan limited liability company, Defendants-Respondents Cross-Appellants.

A163980

Court of Appeals of Oregon.

Argued and submitted February 26, 2019.

July 14, 2021

Carson L. Whitehead, Assistant Attorney General, argued the cause for appellant-cross-respondent. Also on the briefs were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

Michael J. Sandmire, Portland, argued the cause for respondents-cross-appellants. On the combined answering and cross-opening brief were Lori Irish Bauman, Nena Cook, and Ater Wynne LLP; and Joel A. Mullin and Stoel Rives LLP. On the reply brief on cross-appeal were Michael J. Sandmire, Nena Cook, and Ater Wynne LLP; and Joel A. Mullin and Stoel Rives LLP.

Trenton H. Norris, Raqiyyah R. Pippins, Said O. Saba, Jr., and Arnold & Porter Kaye Scholer LLP; and R. Daniel Lindahl and Bullivant Houser Bailey PC filed the brief amici curiae for Council for Responsible Nutrition.

Before Lagesen, Presiding Judge, and DeVore, Judge, and James, Judge.

DeVORE, J.

The state initiated this action against the defendant producers and sellers pursuant to the Unlawful Trade Practices Act (UTPA), ORS 646.605 to 646.656, alleging that defendants had engaged in a variety of unlawful practices in advertising 5-hour ENERGY® (5-HE) energy drinks. The state generally alleged two types of misrepresentations by defendants: first, that defendants had made misrepresentations concerning the effects of the noncaffeine ingredients in their products, and, second, that defendants had misrepresented the results of a survey of physicians in several "Ask Your Doctor" advertisements, falsely implying that physicians recommended 5-HE to their patients.

After a lengthy bench trial, the trial court entered a verdict and general judgment in favor of defendants on all counts. In a supplemental judgment, the court ruled that, despite prevailing, defendants were not entitled to attorney fees under ORS 646.632(8). The state appeals the general judgment, asserting seven assignments of error; defendants cross-appeal the supplemental judgment denying fees.

On appeal, as explained below, we reject the state's first, second, and fourth assignments of error, obviating the need to address the remaining assignments, and we affirm the general judgment.¹ On cross-appeal, we agree with defendants that the trial court erred in denying attorney fees and therefore reverse and remand the supplemental judgment.

I. BACKGROUND

We begin with an introductory discussion of the facts and the history of the case. We elicit more facts as they become appropriate in the analysis of the issues.

Defendants manufacture, market, and sell 5-HE, a two-ounce "energy shot," available in Original, Extra-Strength, and Decaf formulations. At the time of this action, it was being sold nationwide at a rate of approximately nine million bottles a week. Original and Extra-Strength 5-HE contain 200 milligrams and 230 milligrams of caffeine, respectively, and a proprietary blend of noncaffeine ingredients (NCI), including B-vitamins, enzymes, amino-acids, and other ingredients. Decaf 5-HE contains six milligrams of caffeine and a different formulation of NCI.

In 2014, the state filed a complaint against defendants alleging violations of the UTPA based on defendants’ false or misleading promotional claims with regard to its 5-HE products. The complaint sought civil penalties, disgorgement, restitution, injunctive relief, attorney fees, and costs. See ORS 646.632 (authorizing officials to bring action in name of the state; injunctive relief); ORS 646.642 (civil penalties); ORS 646.636 (authorizing court to "make such additional orders or judgments as may be necessary to restore to any person in interest any moneys or property, real or personal, of which the person was deprived by means of any practice declared to be unlawful in ORS 646.607 or 646.608, or as may be necessary to ensure cessation of unlawful trade practices"); see also Pearson v. Philip Morris, Inc. , 358 Or. 88, 116, 361 P.3d 3 (2015) ("A public official bringing an enforcement action may seek, among other possible relief, injunctions, imposition of statutory penalties, and loss of licenses and franchises."). Defendants asserted several affirmative defenses and counterclaimed for attorney fees under ORS 646.632(8), ORS 20.075, and ORS 20.105.

The case proceeded to a bench trial on the state's second amended complaint, which asserted claims for relief under ORS 646.608(1)(e) (counts 1 to 4), ORS 646.608(1)(g) (count 5), ORS 646.608(1)(b) (count 6), and ORS 646.607(1) (count 7).² The complaint generally alleged two categories of claims—"(1) claims regarding what [5-HE] does; and (2) claims regarding whether [5-HE] is recommended by doctors." With respect to the first category, the state alleged that defendants misrepresented, in print, internet, television, and radio advertisements, that the NCI contained in [5-HE] provided consumers with energy, alertness, and focus, when "any meaningful effect from using [5-HE] as directed comes only from a concentrated shot of caffeine. [5-HE] is simply a caffeine delivery device, and in its Decaf formulation, it is not even that." The second category of claims relate to an "Ask Your Doctor" (AYD) advertising campaign that included website advertising and 30-, 15-, and 10-second television advertisements, which, according to the state "misleadingly implied that doctors had recommended [5-HE] by name in a way that they had not," and, with regard to the online advertising, "made claims about benefits provided by certain ingredients in [5-HE]." The AYD campaign ran for approximately 10 weeks in 2012.

At the close of the state's case, the trial court granted defendants’ motion for involuntary dismissal as to two of the counts (counts 5 and 7). Defendants also moved to dismiss the complaint under the free expression guarantee of Article I, section 8, of the Oregon Constitution, asserting facial and as applied challenges; the trial court deferred ruling on those arguments.

The bench trial proceeded to its conclusion on the remaining counts and culminated in a verdict—complete with findings of fact and conclusions of law—in favor of defendants. The state objected to the verdict on various grounds, and defendants requested additional special findings. The trial court issued an order amending the verdict, but the court adhered to its rulings for defendants. The court entered a general judgment in favor of defendants on all of the state's claims.

Defendants filed a statement for attorney fees, costs, and disbursements, alleging an entitlement to fees under ORS 646.632(8) (discussed below). After a hearing, the trial court denied defendants an award of fees and allowed costs and disbursements limited to those not associated with the claim for attorney fees. The court entered a supplemental judgment reflecting that ruling.

The state appeals the general judgment in favor of defendants, and defendants cross-appeal the supplemental judgment denying fees and limiting costs.

II. THE STATE'S APPEAL

A. Materiality (First and Second Assignments of Error)

The state's first and second assignments of error challenge whether, as the trial court held, "materiality" is a requirement in proof of an unlawful trade practice under ORS 646.608(1)(b) and (e). We conclude that it is and, therefore, that the trial court did not err. The state's challenge implicates the trial court's verdicts on counts 1, 4, and 6.³ We begin by describing those counts and the trial court's resolution of them.

In counts 1 and 4, the state asserted violations of ORS 646.608(1)(e),⁴ which makes it an unlawful trade practice to represent that goods "have sponsorship, approval, characteristics, ingredients, uses, benefits, quantities or qualities" that the goods do not have. Count 1 alleged that defendants falsely or misleadingly claimed that the NCI in Original and Extra Strength 5-HE "provide consumers with benefits like energy, alertness, or focus." A sample of one of the 5-HE print advertisements at issue reads, in part:

"To get in the zone—no matter what you're doing—try 5-Hour ENERGY®. It contains the powerful blend of B-vitamins for energy, and amino acids for focus. The two-ounce shot takes seconds to drink and in minutes you're feeling bright, alert and ready for action. And the feeling lasts for hours—without the crash or jitters."

Count 4 also alleged a violation of ORS 646.608(1)(e), but did so with reference to defendants’ AYD campaign. Count 4 alleged that defendants "presented the results of a survey [of doctors] in a deceptive manner that would lead consumers to believe doctors had approved of [5-HE] in a way that they had not." As an example, the transcript of the 30-second AYD television advertisement reads:

"We asked over 3,000 doctors to review Five-Hour Energy and what they said is amazing. Over 73% who reviewed Five-Hour Energy said that they would recommend a low-calorie energy supplement to their healthy patients who use energy supplements. 73%. Five-Hour Energy has four calories and is used over 9 million times a week. Is Five-Hour Energy right for you? Ask your doctor. We already asked 3,000."

Based on the same AYD campaign, count 6 alleged a violation of ORS 646.608(1)(b), which prohibits "[c]aus[ing] likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of * * * goods."

The trial court ruled in favor of defendants on all counts. As relates to the first and second assignments of error, the court determined that the state was required to prove that defendants’ unlawful practices, involving misrepresentations (subsection (1)(e)) or causing likely confusion or misunderstanding ...