Outlaw Laboratory, LP v. DG in PB, LLC et al, No. 3:2018cv00840 - Document 444 (S.D. Cal. 2023)
Court Description: Order Denying Defendant's Motion for Judgment as a Matter of Law (ECF No. 438 ). Signed by Judge Gonzalo P. Curiel on 8/4/23. (All non-registered users served via U.S. Mail Service)(jmo)
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Outlaw Laboratory, LP v. DG in PB, LLC et al Doc. 444 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE OUTLAW LABORATORIES, LP 12 LITIGATION Case No.: 18-cv-840-GPC-BGS ORDER DENYING DEFENDANT’S MOTION FOR JUDGMENT AS A MATTER OF LAW 13 14 15 [ECF No. 438] 16 17 18 19 20 21 Before the Court is Defendant Tauler Smith LLP’s1 Renewed Motion for Judgment as a Matter of Law pursuant to Federal Rule of Civil Procedure 50(b). ECF No. 438. Plaintiffs Roma Minkha, Inc., doing business as Bobar #2 Liquor; NMRM, Inc., doing business as Sunset Liquor; and Skyline Market Inc., doing business as Skyline Farms Market (collectively “The Stores”) filed an opposition to Tauler Smith’s motion, ECF No. 440, and Tauler Smith has filed a reply, ECF No. 441. Pursuant to Civil Local 22 23 24 25 26 27 28 1 Although Tauler Smith was brought into the proceedings as a third-party defendant and counter-defendant, see ECF No. 114 (operative Second Amended Counterclaims and Third-Party Claims), for convenience and clarity the Court adopts the parties’ nomenclature, see ECF No. 411-6, and refers to Tauler Smith as the Defendant and the opposing parties as the Plaintiffs. 1 18-cv-840-GPC-BGS Dockets.Justia.com 1 Rule 7.1(d), the Court found the matter appropriate for ruling on the papers and vacated 2 the hearing previously scheduled for Friday, June 16, 2023. For the reasons set forth below, 3 the Court DENIES Tauler Smith’s Renewed Motion for Judgment as a Matter of Law. 4 I. FACTS AND PROCEEDINGS Background2 5 A. 6 This matter first came before this Court in May 2018 when Tauler Smith, on behalf 7 of its then-client, Outlaw Laboratory, LP, initiated civil proceedings against roughly 50 8 retail stores accused of unlawfully offering sexual enhancement pills that allegedly 9 competed with Outlaw’s own products. ECF No. 1 (Outlaw Complaint); see also ECF 10 No. 28 (consolidation order). Outlaw filed the lawsuits after sending unrequited demand 11 letters to at least some of the retail stores. ECF No. 411-6 at 2.3 The demand letters asserted 12 that the retail stores were unlawfully selling products that were the subject of FDA 13 warnings; that the sale of the pills violated the Lanham Act and the Racketeer Influenced 14 Corrupt Organizations Act (“RICO”); and that the retail stores would be sued if they did 15 not pay to Outlaw a “one-time settlement” ranging from $9,765 to $14,000. Id. Skyline 16 Market, Bobar #2, and Sunset Liquor each received these demand letters, but only Skyline 17 Market elected the settlement option. Id. The Stores filed a counterclaim and third-party 18 claim against Outlaw; its owners Shawn Lynch and Michael Wear; and Tauler Smith 19 alleging RICO violations and rescission. ECF No. 114. 20 21 22 23 24 25 26 2 The Court assumes the parties’ familiarity with the facts and proceedings of this case and includes only a truncated summary of the background facts and procedural developments necessary to understand and decide Tauler Smith’s Renewed Motion for Judgment as a Matter of Law. Additional factual and procedural background information can be found in earlier Court orders. See, e.g., ECF Nos. 147, 209, 251, 293, 375. 3 27 28 Page numbers are based on CM/ECF pagination. 2 18-cv-840-GPC-BGS 1 By July 2020, the Court dismissed Outlaw’s claim in its entirety. ECF Nos. 147, 2 209, 251. In April 2021, the Court dismissed The Stores’ claims against Outlaw and its 3 owners, ECF No. 363, upon their joint notice of settlement and motion to dismiss, ECF 4 No. 362. The only issue left for trial was whether Tauler Smith’s “actions violated the 5 RICO Act, and if so, what the proper remedy should be.” ECF No. 411-6 at 2. 6 B. 7 From March 14 to 16, 2023, the Court conducted a three-day jury trial. ECF Nos. 8 417, 418, 421. The jury returned a verdict in favor of The Stores and awarded damages as 9 follows: Roma Mikha $2,700, NMRM, Inc. $5,940, and Skyline Market $3,300. ECF No. 10 11 12 13 Trial 427. Relevant evidence admitted at trial is discussed below. Robert Tauler of Tauler Smith did not testify. See ECF No. 435 at 87 (TR 467:12–23). 1. The demand letters 14 Through Raid “Roy” Mikha, the owner of Sunset Liquor, ECF No. 433 at 126 (TR 15 126:2–8), The Stores introduced one of the demand letters which was sent by Tauler Smith 16 to Sunset Liquor in December 2017. ECF No. 438-4; see ECF No. 423 at 3 (exhibit list); 17 ECF No. 433 at 128–29 (TR 128:7–129:3). The letter is attached as an appendix to this 18 Order with blank pages omitted. In pertinent parts, the letter alleged that Tauler Smith 19 discovered that Sunset Liquor was “selling illegal sexual enhancement products,” which it 20 called the “Illicit Products,” ECF No. 438-4 at 2, and enclosed pictures of both the 21 storefront and the purportedly illegal products, id. at 5–7, as well as a November 2021 22 notice from the Food and Drug Administration (“FDA”) warning that a product like the 23 one sold in the store had been found to “contain[] sildenafil, the active ingredient in the 24 FDA-approved prescription drug Viagra,” id. at 12. The FDA notice identified only the 25 product Blue Diamond from “an examination of international mail shipments.” Id. at 2, 26 12 (emphasis added). The FDA notice “advis[ed] consumers not to purchase or use” the 27 28 3 18-cv-840-GPC-BGS 1 product. Id. at 12. Nowhere on the FDA notice does it say that the product was illegal to 2 sell. See id. at 12–13 (absence). 3 After pointing to the exhibits and describing the FDA notices as “regarding the 4 illegality of the Illicit Products,” the letter stated: “As you can see, the Illicit Products are 5 illegal to sell and subject your company to legal action for racketeering and unfair business 6 practices under RICO . . . and the Federal Lanham Act.” Id. at 2. The letter alleged that 7 Outlaw was thus entitled to Sunset Liquor’s “profits from the sale of the Illicit Products 8 dating back four years” as well as attorneys’ fees, punitive damages, and treble damages. 9 Id. The letter instructed that despite estimating that Sunset Liquor was liable for more than 10 $100,000, Tauler Smith was “willing to settle all claims in exchange for a one-time 11 settlement agreement of $9,765, and [Sunset Liquor’s] agreement to stop selling the Illicit 12 Products.” 4 Id. at 3. The letter warned that the settlement offer would double if Tauler 13 Smith was “forced to file a formal lawsuit, and the offer [would] be withdrawn if litigation 14 exceed[ed] one month in duration.” Id. Sunset Liquor was instructed to have its attorney 15 contact Tauler Smith within two weeks of the date of the letter “to resolve this matter before 16 [Tauler Smith and Outlaw] file a lawsuit against [Sunset Liquor].” Id. 17 A draft of the complaint that would allegedly be filed against Sunset Liquor, id., was 18 attached to the letter and included causes of action for Lanham Act and RICO Act 19 violations, id. at 15–27. 20 defendants were “engaged in a scheme to distribute tainted ‘male enhancement’ pills The draft complaint alleged that Sunset Liquor and other 21 22 23 24 25 26 27 28 4 The actual amount for which convenience store owners could settle with Outlaw varied, and Joseph Valerio, a witness who performed work for Tauler Smith, testified that store owners would call Tauler Smith to negotiate and Tauler Smith would accept payments based “on how much pushback they received from the store” and “what the firm thought that the stores could afford.” ECF No. 434 at 60–61 (TR 302:21–303:4). Fred Mokou testified to settling with Outlaw for $2,800. ECF No. 433 at 159 (TR 159:15–19). 4 18-cv-840-GPC-BGS 1 containing undisclosed pharmaceuticals to the general public.” Id. at 16. The enhancement 2 products at issue included, but were “not limited to, Blue Diamond (collectively, the 3 ‘Enhancement Products’).” Id. The draft complaint further alleged that “[a]ll of the 4 Enhancement Products have been the subject of testing by the FDA and been found to 5 contain sildenafil, among other hidden drug ingredients.” Id. In addition to repeating some 6 of the other allegations contained in the letter, the draft lawsuit stated that Outlaw sold its 7 competing sexual enhancement products “through its website . . . as well as through many 8 other online and storefront retail locations across the United States.”5 Id. at 22. 9 Other representatives from convenience stores testified to having received demand 10 letters like this one. E.g., ECF No. 433 at 152–53 (TR 152:23–153:22); ECF No. 434 at 11 124–25 (TR 366:12––367:21); ECF No. 435 at 8–9 (TR 388:6–389:23). Fred Mokou of 12 Skyline Market, see ECF No. 433 at 151 (TR 151:12–22), testified to having attended a 13 meeting with roughly 50 to 60 other business owners and managers from other stores that 14 had received similar demand letters, id. at 156 (TR 156:4–25). 15 2. Joseph Valerio testimony 16 Joseph Valerio testified to owning a firm called CTRLR that acted like a Chief 17 Financial Officer (“CFO”) “for businesses that can’t afford CFOs.” ECF No. 434 at 17 18 (TR 259:19–21). He stated that he started working as an independent contractor for the 19 Law Offices of Robert Tauler 6 in January 2015. Id. at 16–17 (TR 258:10–12; 259:13–16). 20 Valerio reported that he continued “working for . . . Tauler when the law firm Tauler Smith 21 22 23 24 5 Lynch testified that Tauler Smith came up with this statement. ECF No. 435 at 43 (TR 423:4–5). 6 25 26 27 28 Throughout his testimony, Valerio used Robert Tauler and Tauler Smith somewhat interchangeably because Robert Tauler is the person that managed the alleged scheme. ECF No. 434 at 38–39 (280:20–281:9); see also id. at 51 (TR 293:8–20) (explaining that Matthew Smith, of Tauler Smith was involved in the project to only a limited degree). 5 18-cv-840-GPC-BGS 1 was created” around the end of 2015 as “their CFO, controller, also an operator”; he “did 2 everything from helping [Tauler] find office space to . . . . the financial aspects of it: HR, 3 payroll, really everything.” Id. at 18–19 (TR 260:12–261:3). Valerio testified to working 4 with Tauler Smith until February 2019. Id. at 19 (TR 261:13–15). Valerio stated that he 5 helped the firm with financial administration, including: transitioning the firm from paper 6 and Excel timekeeping to a software program, paying bills, dealing with taxes, and keeping 7 track of expenses. Id. at 17 (TR 259:4–12). “[W]hen the settlement money or the 8 judgments would come in, [Valerio] was in charge of the trust accounting.” Id. at 31 (TR 9 273:22–25). 10 Valerio explained the origins of the Tauler Smith project concerning “sending 11 demand letters to convenience stores over . . . sexual enhancement pills.” Id. at 20 (TR 12 262:6–11). He traced the project’s beginnings to a lawsuit against Nutrition Distribution, 13 whose owners are friends of Tauler, involving claims of false advertising against its 14 bodybuilding “product that had an illegal component in it.” Id. at 22 (TR 264:2–7). The 15 friends purportedly told Tauler that they lost the lawsuit and Tauler then “came up with the 16 idea of . . . let’s create a new product, and then we’ll sue everybody else who’s putting in 17 illegal stuff and you’ll be able to recoup your money back.” Id. (TR 264:8–11). Nutrition 18 Distribution then created a product “as a vehicle for bringing lawsuits against other 19 supplements.” Id. at 23 (TR 265:8–11). 20 Valerio then testified to how Outlaw “and Tauler Smith first came to be in contact”: 21 Outlaw “also made bodybuilding supplements” and “Rob Tauler/Nutrition Distribution 22 sued [TF Supplements7], which was also the same guys as Outlaw, and won either a 23 24 7 27 Although the transcript says “FT,” presumably Valerio was thinking of TF Supplements. See ECF No. 435 at 65 (TR 445:20–22) (Outlaw owner Michael Wear discussing ownership of TF Supplements). Alternatively, he may have been thinking of C&S Supplements. See id. at 16 (TR 396:19–24) (Outlaw owner Shawn Lynch testifying to first 28 18-cv-840-GPC-BGS 25 26 6 1 settlement or a judgment against them.” Id. at 25–26 (TR 267:3–11; 268:13–15); see ECF 2 No. 435 at 17 (TR 397:2–24) (Lynch recalling settling for some amount between $5,000 3 and $10,000). Valerio testified that after a resolution was reached in the proceeding against 4 Outlaw, James Stovall—who was associated with JST Distribution LLC, which was 5 formed in March 2017, ECF No. 434 at 28–29 (TR 270:22–271:7)—called Tauler and 6 suggested that they do something similar with sexual enhancement pills. Id. at 27 (TR 7 269:12–19). 8 Valerio then described an admitted exhibit that constituted a list of the JST cases in 9 California.8 Id. at 30 (TR 272:3–11). Some of the cases were filed as early as April 2017. 10 Id. at 30–31 (TR 272:21–273:1). Valerio explained that there was an “obstacle” to the 11 litigation because JST Distribution had been formed as recently as March 2017 and “people 12 could just go online and see that the LLC was created . . . a couple of weeks before these 13 lawsuits were filed”; and that “people weren’t necessarily responding.” Id. at 31 (TR 14 273:6–15). Valerio recalled that the solution to this problem was that Tauler Smith and 15 Stovall decided to partner up with TF Supplements and Outlaw because Outlaw was 16 established earlier than JST Distribution in 2016. Id. at 32 (TR 274:11–20); see ECF No. 17 435 at 16 (TR 396:8–9). 18 Valerio also testified that getting the “scheme” started required financing for things 19 like building an app and hiring personnel. ECF No. 434 at 33 (TR 275:2–18). He explained 20 that Tauler had “dr[awn] up kind of a form letter” to use, id. at 35 (TR 277:1–8), and that 21 22 23 24 contact with Tauler Smith being his receipt of a demand letter sent to retail company C&S Supplements). 8 25 26 27 28 Valerio clarified that “there were definitely targets and settlements coming from other states,” ECF No. 434 at 30 (TR 272:15–20), and Tauler Smith worked with law firms in other states, id. at 42–43 (TR 284:20–285:6). 7 18-cv-840-GPC-BGS 1 at one point they were “send[ing] out 3- to 5,000 letters at a time,” id. at 35–36 (TR 277:25– 2 278:2), to California, Texas, Florida, and other states, id. at 36–37 (TR 278:25–279:6). 3 Tauler Smith initially used a printing company, but that got too expensive because they 4 were paying $12 to $13 for the printing, stuffing, and postage for each letter. Id. at 35–36 5 (TR 277:25–278:7). They had “troops on the ground to take photos . . . of the stores,” id. 6 at 37 (TR 279:4–6); people whose job it was “to follow up on the letters . . . [a]fter two 7 weeks passed . . . to . . . call and make sure that [the store] got the letter and to push them 8 to settle,” id. at 40–41 (TR 282:18–283:24); and lawyers that “would come in and out,” id. 9 at 41 (TR 283:3–4). He recalled one “very bright” attorney who “got in, realized what she 10 was doing for a couple months, and then left.” Id. (TR 283:5–7). 11 Valerio recalled that the one time that Tauler Smith tested product samples taken 12 from a convenience store, specifically from Sunset Liquor and sent to the testing facility in 13 July 2019, the results came back negative for sildenafil—the active ingredient in Viagra 14 and the cause of concern in the FDA notice, ECF No. 438-4 at 12—and negative for 15 tadalafil—the active ingredient in Cialis. ECF No. 434 at 54–55 (TR 296:11–297:17).9 16 The product tested was an iteration of the Horny Rhino enhancement product. Id. at 54 17 (TR 296:20–23). He testified that some of the other attorneys at “Tauler Smith express[ed] 18 . . . concern over whether they were sending demand letters or whether they were actually 19 suing stores who may have in fact not sold a pill that had any pharmaceuticals in it,” and 20 Tauler “did not care.” Id. at 56–57 (TR 298:24–299:6). He additionally recalled that 21 Tauler started affixing Smith’s name to lawsuits—rather than Tauler’s name—because 22 Tauler was filing so many lawsuits that were getting thrown out “[a]nd judges were getting 23 24 25 26 27 28 9 The exhibit containing the laboratory results was admitted without objection. ECF No. 434 at 54 (TR 296:2–7). 8 18-cv-840-GPC-BGS 1 upset with Tauler and started sanctioning him, so he had to use a different lawyer.” Id. at 2 52–53 (TR 294:15–295:4). 3 Although convenience store owners made statements during their testimony 4 suggesting that they felt like Outlaw and Tauler Smith were targeting them because they 5 were immigrants and had learned English as a second language, see ECF No. 433 at 142 6 (TR 142:14–20); ECF No. 435 at 11 (TR 391:14–15), Valerio testified that Tauler Smith 7 went after the convenience stores because “he was scared of the distributors and the 8 manufacturers,” ECF No. 434 at 37–38 (TR 279:14–280:19). 9 3. Testimony from the owners of Outlaw Laboratories 10 Shawn Lynch and Michael Wear were Outlaw’s founders and owners. ECF No. 435 11 at 15 (TR 395:16–18). Lynch’s testimony corroborated much of Valerio’s testimony, but 12 frequently referred to the products being sold at the convenience stores as “illegal 13 products.” See, e.g., id. at 20–23 (TR 400:3–403:18) (Lynch discussing the lawsuits, his 14 understanding of the purpose behind the lawsuits, sources of funding, and hiring people to 15 go investigate various convenience stores). Lynch’s testimony suggested that he believed 16 the competing products being sold at the convenience stores were illegal. E.g., id. at 24, 17 49–50 (TR 404:9–10; 429:3–430:10). Lynch testified that Outlaw’s product was mostly 18 sold “direct to consumer”; “[t]here was probably one or two distributors maybe, small 19 ones” which would distribute the product to a retailer. Id. at 52–54 (TR 433:19–434:1; 20 435:17–20). Lynch confirmed that he would not “have written in a draft complaint that 21 [Outlaw’s product] was sold at storefront retail locations across the United States” because 22 they were not sold “across the United States, . . . only on online.” Id. at 43 (TR 423:1–10). 23 Lynch testified that Outlaw did not make any efforts “to get stores in California to carry” 24 their product, instead they relied on distributors to get the product in stores or sold direct 25 to consumers. Id. at 57–58 (TR 437:22–438:13). Outlaw’s practice was the same in New 26 York and Florida as well. Id. at 58–59 (TR 438:21–439:11). 27 28 9 18-cv-840-GPC-BGS 1 Lynch testified to responding to an email that Tauler sent him in December 2017. 2 Id. at 44 (TR 424:1–12); see ECF No. 440-1 at 36 (email used to refresh recollection but 3 not admitted into evidence). When asked whether he recalled “telling Mr. Tauler that, in 4 fact, [Outlaw’s product] was not sold in retail stores across the United States,” Lynch 5 clarified that Outlaw’s product “was distributed everywhere”; it was sold “to every city 6 pretty much,” but “direct to consumer.” ECF No. 435 at 44 (TR 424:7–12). 7 Wear also corroborated much of Valerio’s testimony. See, e.g., id. at 65–69 (TR 8 445:17–449:7). Wear was not sure whether Outlaw sold its product in retail locations 9 across the United States, id. at 75–76 (TR 455:2–7; 456:14–22), but testified to assuming 10 as much and to having told Tauler that it was, id. at 76 (TR 456:2–13). He did not know 11 of any store locations outside of Texas. Id. (TR 456:14–22). Wear also testified to his 12 belief that competing products being sold in stores were unfairly competing with Outlaw’s 13 all natural products and that their litigation pursuits against the convenience stores were 14 not fraudulent. Id. at 82–84 (TR 462:10–464:16). 15 4. Rule 50(a) motion for judgment as a matter of law and jury verdict 16 “On March 15, 2023, at the close of The Stores’ case-in-chief and before the case 17 was submitted to the jury, Tauler Smith made an oral Rule 50(a) judgment as a matter of 18 law motion.” ECF No. 438-1 at 7; ECF No. 440 at 3 (The Stores concede this point); ECF 19 No. 435 at 95–96, 101 (TR 475:8–476:8; 481:17–23). Tauler Smith argued that there was 20 insufficient evidence at trial to prove the predicate act of mail fraud. ECF No. 435 at 101– 21 08 (TR 481:17–488:9). The Court denied the motion. Id. at 111 (TR 491:15). 22 On the afternoon of March 16 the jury completed its deliberations and reached a 23 verdict finding Tauler Smith liable for RICO violations and awarding damages to each of 24 the stores. ECF No. 427. 25 26 27 28 Tauler Smith timely renewed its motion for judgment as a matter of law. ECF No. 438. 10 18-cv-840-GPC-BGS 1 II. LEGAL STANDARDS 2 “A Rule 50(b) motion for judgment as a matter of law is not a freestanding motion 3 . . . . [but] “is a renewed Rule 50(a) motion.” E.E.O.C. v. Go Daddy Software, Inc., 581 4 F.3d 951, 961 (9th Cir. 2009). Indeed, a Rule 50(b) “motion for judgment as a matter of 5 law must be preceded by a [Rule 50(a)] motion . . . that sets forth the specific grounds 6 raised in the renewed motion.” Wallace v. City of San Diego, 479 F.3d 616, 631 (9th Cir. 7 2007). A party may renew a properly made Rule 50(a) motion pursuant to Rule 50(b) “[i]f 8 the judge denies or defers ruling on the [Rule 50(a)] motion, and if the jury then returns a 9 verdict against the moving party[.]” Go Daddy, 581 F.3d at 961. But the “Rule 50(b) 10 motion is limited to the grounds asserted in the pre-deliberation Rule 50(a) motion.” Id. 11 A Rule 50(b) motion “is properly denied unless ‘the evidence, construed in the light 12 most favorable to the nonmoving party, permits only one reasonable conclusion, and that 13 conclusion is contrary to the jury’s verdict.’ ” Aguirre v. California, 842 F.App’x 91, 93 14 (9th Cir. 2021) (quoting Escriba v. Foster Poultry Farms, Inc., 743 F.3d 1236, 1242 (9th 15 Cir. 2014)); see also Lakeside-Scott v. Multnomah Cnty., 556 F.3d 797, 802 (9th Cir. 2009) 16 (“[A] reasonable inference ‘cannot be supported by only threadbare conclusory statements 17 instead of significant probative evidence.’ ” (quoting Barnes v. Arden Mayfair, Inc., 759 18 F.2d 676, 680–81 (9th Cir. 1985))). “A jury’s verdict must be upheld if it is supported by 19 substantial evidence, which is evidence adequate to support the jury’s conclusion, even if 20 it is also possible to draw a contrary conclusion.” Pavao v. Pagay, 307 F.3d 915, 918 (9th 21 Cir. 2002). The court “must review the entire evidentiary record.” Harper v. City of Los 22 Angeles, 533 F.3d 1010, 1021 (9th Cir. 2008). “[T]he court must not weigh the evidence, 23 but should simply ask whether the [nonmoving party] has presented sufficient evidence to 24 support the jury’s conclusion.” Id. 25 /// 26 /// 27 28 11 18-cv-840-GPC-BGS 1 III. DISCUSSION 2 Plaintiffs do not dispute “that Tauler Smith preserved at the [Rule 50(a)] stage the 3 argument it now makes in its [Rule] 50(b) motion.” ECF No. 440 at 3. Accordingly, the 4 Court turns to whether The Stores offered sufficient evidence of mail fraud during trial to 5 support the jury’s RICO verdict. 6 “The elements of a civil RICO claim are as follows: (1) conduct (2) of an enterprise 7 (3) through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5) causing 8 injury to plaintiff’s business or property.” United Bhd. of Carpenters & Joiners of Am. v. 9 Bldg. & Constr. Trades Dep’t, 770 F.3d 834, 837 (9th Cir. 2014) (quoting Living Designs, 10 Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005)). The relevant 11 predicate acts in this case concerned “violations of 18 U.S.C. Section 1341 which is 12 commonly known as the mail fraud statute.” ECF No. 538-5 at 29 (TR 528:1–7). The mail 13 fraud statute “contain[s] three elements: (A) the formation of a scheme to defraud, (B) the 14 use of the mails . . . in furtherance of that scheme, and (C) the specific intent to defraud.” 15 Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014). 16 “[I]f a scheme is devised with the intent to defraud, and the mails are used in executing the 17 scheme, the fact that there is no misrepresentation of a single existing fact is immaterial.” 18 United States v. Woods, 335 F.3d 993, 998 (9th Cir. 2003) (quoting Lustiger v. United 19 States, 386 F.2d 132, 138 (9th Cir. 1967)); accord United States v. Chang, No. 16-cr- 20 00047, 2020 WL 5702131, at *2 (N.D. Cal. Sept. 24, 2020); In re Outlaw Lab’y, LP Litig., 21 No. 18-cv-840, 2020 WL 1953584, at *6 (S.D. Cal. Apr. 23, 2020). The scheme need only 22 be “reasonably calculated to deceive.” Woods, 335 F.3d at 998 (quoting Lustiger, 386 F.2d 23 at 138). “Misrepresentations of law,” however, “are not actionable as fraud, including 24 under the mail . . . fraud statute[], because statements of the law are considered merely 25 opinions and may not be relied upon absent special circumstances.” Sosa v. DIRECTV, 26 Inc, 437 F.3d 923, 940 (9th Cir. 2006). Once the plaintiff “proves the existence of a scheme 27 28 12 18-cv-840-GPC-BGS 1 which was ‘reasonably calculated to deceive persons of ordinary prudence and 2 comprehension,’ ” specific intent to defraud can be inferred “by examining the scheme 3 itself.” Eclectic, 751 F.3d at 997 (quoting United States v. Green, 745 F.2d 1205, 1207 4 (9th Cir. 1984). 5 In its Rule 50(b) motion, Tauler Smith contends that there was a lack of evidence 6 introduced at trial to support the specific intent to defraud element. ECF No. 438-1 at 9– 7 10. In addition, Tauler Smith raises in its reply for the first time the additional argument 8 that the Stores failed to offer evidence as to the scheme to defraud element. Compare ECF 9 No. 438-1 (absence), with ECF No. 441 at 2–5 (arguing for the first time in the Rule 50(b) 10 motion that “there was no evidence of a scheme to deceive”). To the extent that this claim 11 was not raised in the moving papers, Tauler Smith has waived the argument. However, a 12 review of the evidence presented at trial supports the existence of a scheme to defraud. 13 Ultimately, The Stores were required to submit evidence sufficient to prove the existence 14 of a scheme to deceive and from which a factfinder could infer Tauler Smith’s intent to 15 defraud. See Eclectic, 751 F.3d at 997. 16 Tauler Smith argues that none of the testimony or tangible evidence before the jury 17 “would support a finding that Tauler Smith had the ‘specific intent to defraud,’ nor could 18 the intent be inferred from the demand letters themselves.” ECF No. 438-1 at 9. The intent 19 to defraud may be inferred from a defendant’s statements and conduct. United States v. 20 Peters, 962 F.2d 1410, 1414 (9th Cir. 1992). Upon review of the evidence presented at 21 trial, the Court concludes The Stores offered evidence from which the jury could infer 22 Tauler Smith’s intention to defraud or deceive from “the deceptive and false statements in” 23 the demand letters. ECF No. 436 at 46–48 (TR 546:4–548:21). 24 A. 25 The scheme to defraud presented by the Stores at trial consisted of a demand letter 26 campaign that relied on false or misleading claims that the Stores were knowingly selling 27 28 Allegedly “Selling Illegal Sexual Enhancement Products” 13 18-cv-840-GPC-BGS 1 “illegal products.” The key trial evidence included the demand letter and attachments 2 consisting of photographs and an FDA notice dated November 20, 2017 as well as the 3 testimony of Joseph Valerio, a former independent contractor for Tauler Smith who acted 4 as the CFO for Tauler Smith. 5 The evidence at trial showed that Tauler Smith had “dr[awn] up kind of a form letter” 6 to use, ECF No. 434 at 35 (TR 277:1–2), and that at one point they were “send[ing] out 3- 7 to 5,000 letters at a time,” id. at 36 (TR 278:1–3), to California, Texas, Florida, and other 8 states. The demand letter introduced at trial stated that Tauler Smith had “recently 9 discovered that your company, Sunset Liquor, is selling illegal sexual enhancement 10 products, including but not limited to, Blue Diamond (the ‘Illicit Products’).” ECF No. 11 438-4 at 2. The attached photographs showed the allegedly “illegal products” available for 12 purchase within the store, including nine different pills that were sold at Sunset Liquor, 13 two of which were Rhino-labeled products and one of was a Blue Diamond product. Id. at 14 6. As to the claimed illegality of the pills, the letter relied on a U.S. Food and Drug Notice, 15 id. at 2, which notified the public of the discovery of sildenafil in a lab tested Blue Diamond 16 pill, id. at 12. The notice was intended “to inform the public of a growing trend of dietary 17 supplements . . . with hidden drugs and chemicals.” Id. However, the FDA notice only 18 advised consumers against taking Blue Diamond without indicating that the product, or 19 others like it, were illegal. See id. Meanwhile, the attached sample complaint alleged that 20 The Stores were engaged in a conspiracy to sell the purportedly illegal “products by making 21 false statements including that the Enhancement Products are ‘all natural’ ” despite 22 knowing that the pills contained “dangerous secret ingredients.” Id. at 16. 23 At its core, the demand letters claimed that The Stores were knowingly and illegally 24 selling products that contained artificial prescription drugs with known side effects, in 25 order to extort cash payments from The Stores. 26 demonstrated that this claim was false and misleading. Valerio stated that Tauler Smith 27 28 However, Valerio’s testimony 14 18-cv-840-GPC-BGS 1 had tested product samples from stores only once and as late as July 2019, when it tested a 2 Rhino-labeled product from Sunset Liquors and the results came back negative for both 3 sildenafil and tadalafil, the active ingredients in Viagra and Cialis, respectively. ECF No. 4 434 at 54–55 (TR 296:14–297:17). Valerio testified that pre-demand testing was not 5 performed, even though it was available, because it was considered too expensive, id. at 6 53–54 (TR 295:12–296:24). The jury learned that other attorneys at Tauler Smith 7 “express[ed] . . . concern over whether they were sending demand letters or whether they 8 were actually suing stores who may have in fact not sold a pill that had any pharmaceuticals 9 in it.” Id. at 56–57 (TR 298:24–299:6). According to Valerio, Tauler did not care whether 10 the pills contained pharmaceuticals in spite of the fact that thousands of stores were 11 receiving the form demand letters. Id. 12 This evidence supports the jury’s finding that Tauler Smith had the specific intent to 13 defraud. Electing not to test The Stores’ products before sending demand letters or 14 initiating litigation reveals a reckless indifference to the contents of the pills sold by The 15 Stores. Coupled with testimony that Tauler did not care that his attorneys were concerned 16 whether the stores were selling pills that contained any pharmaceuticals sufficiently 17 supports the jury’s conclusion that Tauler Smith had specific intent to deceive The Stores. 18 See ECF No. 434 at 41, 56–57 (TR 283:5–7; 298:24–299:6); United States v. McDonald, 19 576 F.2d 1350, 1358 (9th Cir. 1978) (“In mail fraud cases, ‘[o]ne who acts with reckless 20 indifference as to whether a representation is true or false is chargeable as if he had 21 knowledge of its falsity.’ ” (alteration in original) (quoting United States v. Love, 535 F.2d 22 1152, 1158 (9th Cir. 1976))); United States v. Caterino, Nos. 90-50049, 90-50050, 1992 23 WL 33347, at *4–5 (9th Cir. Feb. 21, 1992) (“ ‘[A]wareness of a high probability of fraud, 24 coupled with shutting one’s eyes to avoid learning the truth, may in some instances support 25 a conviction for mail fraud.’ . . . Thus, deliberate ignorance is an appropriate standard for 26 a wire or mail fraud conviction.” (alteration in original) (quoting United States v. Price, 27 28 15 18-cv-840-GPC-BGS 1 623 F.2d 587, 592 (9th Cir. 1980), overruled on other grounds by United States v. De 2 Bright, 730 F.2d 1255, 1259–60 (9th Cir. 1984))). A jury could further infer Tauler Smith’s 3 intent to deceive—and find support for the scheme to defraud—when, sometime around 4 July 2019, Tauler Smith finally tested samples from Sunset Liquor only to realize they did 5 not contain the sildenafil as indicated in the demand letter.10 This suggests that there was 6 no basis to claim that the pills were illegal to sell or that The Stores were aware of the 7 presence of sildenafil in the pills. All of this supports an inference that Tauler Smith 8 created a racket premised on false claims and ignored the concerns of attorneys at Tauler 9 Smith that “they were actually suing stores who may have in fact not sold a pill that had 10 any pharmaceuticals in it.” See ECF No. 434 at 56–57 (TR 298:24–299:6). This evidence 11 undergirds the jury’s conclusion that Tauler Smith had the specific intent to defraud The 12 Stores. 13 B. 14 Products Allegedly Sold In “Storefront Retail Locations Across The United States” 15 Having made the false claim that the enhancement products contained sildenafil, 16 Tauler Smith made additional deceptive material statements in order to monetize its 17 demands. The demand letter stated that Outlaw’s products were sold in “storefront retail 18 locations across the United States.” See ECF No. 438-4 at 22. Lynch testified to the issue 19 of whether Outlaw sold its products in stores outside of Texas. Lynch confirmed that he 20 would not “have written in a draft complaint that [Outlaw’s product] was sold at storefront 21 retail locations across the United States” because they were not sold “across the United 22 23 24 25 26 27 28 10 Although the testing occurred after the demand letters were sent to The Stores, this evidence is probative of Tauler Smith’s intent under Federal Rule of Evidence 404(b). See United States v. Lloyd, 807 F.3d 1128, 1157 (9th Cir. 2015) (“Evidence of a subsequent bad act is admissible under Rule 404(b) to show ‘motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.’ ” (quoting Rule 404(b)). 16 18-cv-840-GPC-BGS 1 States, . . . only on online.” ECF No. 435 at 43 (TR 423:1–10). Lynch explained how 2 Outlaw did not make any efforts to put their product in stores aside from shipping the 3 product to distributors. ECF No. 435 at 57–59 (TR 437:22–439:11). After being asked 4 whether he recalled telling Tauler that Outlaw’s product “was not sold in retail stores across 5 the United States,” Lynch confirmed that the product was “distributed everywhere” and 6 sold in “every city, pretty much,” but on a “direct to consumer” basis. Id. at 44 (TR 424:7– 7 14). 8 Tauler Smith accurately points to Wear’s testimony in which he recalls telling Tauler 9 that their product was sold in storefront retail locations across the United States, ECF No. 10 435 at 76 (TR 456:2–13), and to Wear acknowledging that he did not “know any retail 11 locations in any states other than Texas that, in fact, sold” Outlaw’s product, id. (TR 12 456:14–22). ECF No. 438-1 at 16–17. However, reviewing the evidence in the light most 13 favorable to the Stores, Lynch’s and Wear’s testimony provided evidence supporting the 14 conclusions that (1) Outlaw’s products at issue were not sold in retail stores across the 15 country, maybe not even outside of Texas; and (2) that Tauler was put on notice of this fact 16 because he had been told by one owner that although the product was sold everywhere, it 17 was on a direct to consumer basis. The statement in the draft complaint attached to the 18 demand letter asserting that Outlaw’s product was sold in storefronts across the United 19 States supports the inference that Tauler Smith had the specific intent to defraud because 20 Outlaw’s alleged injury from the sale of these “illegal” sexual enhancement pills was 21 deceptive and meant to convince The Stores that Outlaw’s products had a wider distribution 22 base from which the damages demand was justified. See ECF No. 438-4 at 23, 25. 23 C. 24 Valerio testified that an “obstacle” to the litigation existed when the first lawsuits 25 were filed in April 2017 because the forerunner to Outlaw Laboratories, JST Distribution, 26 had been formed around March 2017 and “people could just go online and see that the LLC 27 28 Outlaw Was Allegedly Entitled To Four Years’ Worth Of Profits 17 18-cv-840-GPC-BGS 1 was created . . . a couple of weeks before these lawsuits were filed”; thus “people weren’t 2 necessarily responding.” ECF No. 434 at 31 (TR 273:6–11). The solution to address this 3 problem was for Tauler Smith and Stovall to partner up with TF Supplements and Outlaw 4 because Outlaw was established earlier in 2016. Id. at 32 (TR 274:11–20); see ECF No. 5 435 at 16 (TR 396:8–9). Even though Outlaw was formed less than two years before the 6 letter presented at trial was sent, ECF No. 434 at 32 (TR 274:15–20), the demand letter 7 stated that the letter recipient would be liable for four years’ worth of profits, among other 8 damages. ECF No. 438–4 at 2. 9 Assuming, without deciding, that this statement was merely a misrepresentation of 10 law rather than fact and thus not actionable as fraud, see Sosa v. DIRECTV, Inc, 437 F.3d 11 923, 940 (9th Cir. 2006), the Court finds that the statement contributes to the body of 12 evidence that would allow a factfinder to infer Tauler Smith’s specific intent to defraud. 13 Tauler Smith had learned that letter recipients were less inclined to settle if they could 14 easily determine that Tauler Smith’s client company was recently created, id. at 31 15 (TR 331:8–13). In order to support the initial monetary loss estimate of $100,000, Tauler 16 Smith and Stovall paired up with TF Supplements and Outlaw both to add legitimacy to an 17 otherwise toothless demand letter and to increase the perception of the recipient’s liability 18 for damages. These actions reveal steps designed to deceive the recipients of the thousands 19 of demand letters and further support the jury’s conclusion that Tauler Smith had the 20 specific intent to deceive The Stores. 21 Thus, The Stores presented sufficient evidence at trial to prove that Tauler Smith 22 created a scheme to deceive convenience store owners and had the specific intent to defraud 23 under the mail fraud statute. 24 IV. 25 26 27 28 CONCLUSION For the reasons explained above, Tauler Smith’s Rule 50(b) Motion for Judgment as a Matter of Law is DENIED. 18 18-cv-840-GPC-BGS 1 2 IT IS SO ORDERED. Dated: August 4, 2023 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 18-cv-840-GPC-BGS Appendix Sample Demand Letter with Attachments (Introduced at trial as Plaintiffs’ Exhibit No. 107) 1 Leticia Kimble, Esq. Tauler Smith LLP 626 Wilshire Blvd, Ste 510 Los Angeles, CA 90017 (310) 492-5129 Leticia.Kimble@taulersmith.com 2 3 4 5 12/15/2017 6 7 VIA CERTIFIED MAIL Sunset Liquor 985 Broad ay Ste L 9 CHULA VISTA, CA 91911 8 10 Re: 11 Unlawful Sexual Enhancement Products 12 To Whom It May Concern: 13 We represent Outla Laboratory, LP ( Plainti ), a manufacturer, distributor and retailer of male enhancement products TriSteel and TriSteel 8 hour. We have recently discovered that your company, Sunset Liquor, is selling illegal sexual enhancement products, including but not limited to, Blue Diamond (the Illicit Products ). 14 15 16 17 18 19 20 21 22 • Enclosed as EXHIBIT A are photographs ta en at your place of business capturing your sale of the Illicit Products. • Enclosed as EXHIBIT B are notices from the Food and Drug Administration regarding the illegality of the Illicit Products. As you can see, the Illicit Products are illegal to sell and subject your company to legal action for rac eteering and unfair business practices under RICO (Rac eteer In uenced Corrupt Organizations) and the Federal Lanham Act. Accordingly, under these federal la s our client is entitled to: 23 24 • 25 • • • 26 Your pro ts from the sale of the Illicit Products dating bac four years. (15 U.S.C. § 1117) Attorney s fees. (18 U.S.C. § 1964) Punitive damages. (15 U.S.C. § 1117) Triple damages. (18 U.S.C. § 1964 15 U.S.C. § 1117) 107 27 DEPOSITION EXHIBIT COMPLAINT Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 3 1642 107 R.Tauler 6/29/20 MMcArver 1 2 3 4 5 6 7 8 We estimate that you are liable for over 100,000 if e prosecute this matter to a jury trial. Although Plainti is entitled to the monetary remedies detailed above, it is illing to settle all claims in exchange for a one-time settlement agreement of $9,765, and your agreement to stop selling the Illicit Products. This o er ill double if e are forced to le a formal la suit, and the o er ill be ithdra n if litigation exceeds one month in duration. Please have your attorney contact our o ce no later than 12 29 2017 to resolve this matter before e le a la suit against your business, a draft of hich e have attached as EXHIBIT C. This letter is sent ithout prejudice to Plainti s rights and claims, all of hich are expressly reserved. Please direct any communications regarding this matter to my attention. 9 10 Best regards, 11 12 13 14 Leticia Kimble, Esq. 15 16 17 18 19 20 21 22 23 24 25 26 27 COMPLAINT Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 4 1642 EXHIBIT A Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 5 Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 6 Sunset Liquor 1642 Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 7 Sunset Liquor 1642 Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 8 8 Sunset Liquor 1642 EXHIBIT B Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 2 11/21/2017 Medication Health Fraud > Public Noti cation: Blue Diamond Pill contains hidden drug ingredient Public Noti cation: Blue Diamond Pill contains hidden drug ingredient [11-20-2017] The Food and Drug Administration (FDA) is advising consumers not to purchase or use Blue Diamond Pill, a product promoted for sexual enhancement. This product was identi ed by FDA during an examination of international mail shipments. FDA laboratory analysis con rmed that Blue Diamond Pill contains sildena l, the active ingredient in the FDA-approved prescription drug Viagra, used to treat erectile dysfunction. This undeclared ingredient may interact with nitrates found in some prescription drugs such as nitroglycerin and may lower blood pressure to dangerous levels. People with diabetes, high blood pressure, high cholesterol, or heart disease often take nitrates. Health care professionals and patients should report adverse events or side e ects related to the use of this product to the FDA's MedWatch Safety Information and Adverse Event Reporting Program: Complete and submit the report online at MedWatch Online Voluntary Reporting Form (https://www.accessdata.fda. gov/scripts/medwatch/), or; Download and complete the form (http://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/Forms/UCM349464.pdf), then submit it via fax at 1-800-FDA-0178. Note: This noti cation is to inform the public of a growing trend of dietary supplements or conventional foods with hidden drugs and chemicals. These products are typically promoted for sexual enhancement, weight loss, and body building and are often represented as being “all natural.” FDA is unable to test and identify all products marketed as dietary supplements that have potentially harmful hidden ingredients. Consumers should exercise caution before purchasing any product in the above categories. Please refer to the links below for more information: Tainted Sexual Enhancement Products (http://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/Medication HealthFraud/ucm234539.htm) Subscribe to the RSS feed (http://www.fda.gov/AboutFDA/ContactFDA/StayInformed/RSSFeeds/TDS/rss.xml) Beware of Fraudulent ‘Dietary Supplements’ (http://www.fda.gov/ForConsumers/ConsumerUpdates/ucm246744.htm) Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 3 https://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/MedicationHealthFraud/ucm586019.htm 1/2 11/21/2017 Medication Health Fraud > Public Noti cation: Blue Diamond Pill contains hidden drug ingredient Contact FDA Toll Free (855) 543-3784, or (301) 796-3400 druginfo@fda.hhs.gov (mailto:druginfo@fda.hhs.gov) Human Drug Information Division of Drug Information (http://www.fda.gov/AboutFDA/CentersO ces/O ceofMedicalProductsandTobacco/CDER/ucm082585) (CDER) O ce of Communications Feedback Form (http://www.accessdata.fda.gov/scripts/email/cder/comment.cfm) 10001 New Hampshire Avenue Hillandale Building, 4th Floor Silver Spring, MD 20993 Resources for You Sign Up for Email Alerts on Tainted Products Sold as Dietary Supplements (https://service.govdelivery.com/service/subscribe.html?code=USFDA_198) Tainted Products That are Marketed as Dietary Supplements RSS Feed (http://www.fda.gov/AboutFDA/ContactFDA/StayInformed/RSSFeeds/TDS/rss.xml) More in Medication Health Fraud (/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/MedicationHealthFraud/default.htm) Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 4 https://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/MedicationHealthFraud/ucm586019.htm 2/2 EXHIBIT C Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 5 1642-DC Leticia Kimble (SBN 262012) Tauler Smith LLP 626 Wilshire Blvd., Suite 510 Los Angeles, California 90017 Tel: (310) 492-5129 Leticia.Kimble@taulersmith.com Attorneys for Plainti OUTLAW LABORATORY, LP UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA OUTLAW LABORATORY, LP,a Texas limited partnership, CASE NO.12801642 Plainti COMPLAINT FOR: VS. Sunset Liquor; [DISTRIBUTOR REDACTED]; [SUPPLIER REDACTED]; [ADDITIONAL DEFENDANTS REDACTED] and DOES 1 through 10, inclusive, Defendants. (1) FALSE ADVERTISING IN VIOLATION OF THE LANHAM ACT § 43 (a)(1)(B)); AND (2) VIOLATION OF THE CIVIL RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT (RICO) [DEMAND FOR A JURY TRIAL] Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 6 1642 Plainti Outla Laboratory, LP, a Texas limited partnership ( Outla Plainti or ), by and through its undersigned attorneys, submits this Complaint against defendants Sunset Liquor, [DISTRIBUTOR REDACTED] ( Distributor ) and [SUPPLIER REDACTED] ( the Supplier Defendants ), [ADDITIONAL DEFENDANTS REDACTED] and Does 1-10 (collectively, the Defendants ), and in support thereof avers as follo s: INTRODUCTION 1. Defendants are engaged in a scheme to distribute tainted male enhancement pills containing undisclosed pharmaceuticals to the general public. Speci cally, Defendants o er for sale various sexual enhancement products, including but not limited to, Blue Diamond (collectively, the Enhancement Products ). All of the Enhancement Products have been the subject of testing by the FDA and been found to contain sildena l, among other hidden drug ingredients. 2. The Enhancement products are distributed through a net or of co- conspirators, named herein as co-defendants (the Conspiracy Defendants ), ho o n and operate independent businesses selling the Enhancement Products, and ho pro t from the sale of the illegal and dangerous products by ma ing false statements including that the Enhancement Products are all natural and have limited side e ects. Aside from these patently false statements, Defendants have failed to disclose the true nature of the Enhancement Products to its customers, even though they are a are of their dangerous secret ingredients. 3. Plainti is the manufacturer of competing products called TriSteel and TriSteel 8hour, hich are all natural male enhancement products made in the USA and distributed for sale in all 50 US States. 4. The illegal male enhancement supplement industry that has ourished in the shado s of ea regulatory and criminal enforcement of nutritional supplement la s. Distributor and the Conspiracy Defendants have made signi cant pro ts sellingdangerous Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 7 1642 products and openly engaging in illegal activity. In this regard, the FDA has issued several public notices regarding the use of sildena l in over the counter male enhancement supplements, but has only pursued criminal action intermittently. 5. Thus, Plainti s only recourse is a civil action to protect the commercial interests recognized by the Lanham Act and to expose the civil conspiracy detailed herein. As such, Defendants have no ingly and materially participated in a false and misleading advertising campaign to promote and sell its Enhancement Products, giving consumers the false impression that these products are safe hen in reality, Defendants are ell a are that the Enhancement Products contain hidden drug ingredients that require a prescription from a medical doctor. 6. Defendants false and misleading statements and advertising pose extreme health ris s to consumers in at least t o ays. First, Defendants mislead consumers into believing that the advice and authorization of a licensed medical professional is not required to mitigate or avoid the potentially life-threatening side e ects, drug interactions and contraindications of the sildena l and other drug ingredients hidden in the Enhancement Products. Second, by failing to inform consumers that the Enhancement Products contain sildena l, consumers ho no that their medical history and drug prescriptions ma e sildena l consumption dangerous may nevertheless consume the Enhancement Products because they are una are that they contain sildena l. 7. Defendants have no ingly and materially participated in false and misleading mar eting, advertising and labeling to promote and sell the Enhancement Products, giving consumers the false impression that these products are safe and natural dietary supplements hen in reality Defendants no that the Enhancement Products contain arti cially manufactured prescription drug ingredients that pose extreme health dangers hen ta en ithout the supervision of a licensed medical professional. 8. Such false and misleading mar eting and advertising is extremely dangerous to individual consumers and harmful to the dietary supplement industry as a hole. Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 8 1642 Defendants have created an illegitimate mar etplace of consumers see ing to enhance their sexual performance but ho are not informed, or ho are misinformed, of the serious dangers of using Defendants Enhancement Products. Consumers of the Enhancement Products have little or no incentive to use natural, legitimate and safe sexual performance enhancement products, such as Plainti s TriSteel or TriSteel 8hour, until they are harmed or Defendants Enhancement Products are ta en o of the shelves. Defendants continuing false, misleading, illegal and deceptive practices have violated the Lanham Act and have unjustly enriched Defendants at the expense of Plainti , and have caused Plainti extensive and irreparable harm, including but not limited to, loss of revenue, disparagement and loss of good ill. 9. Among other things, this action see s to enjoin Defendants from the mar eting and sale of any and all of the Enhancement Products, punitive damages and attorneys fees as Defendants are illegally and falsely mar eting such products in violation of the Lanham Act and the Civil Rac eteer In uenced and Corrupt Organizations Act of 1970. JURISDICTION AND VENUE 10. This Court has subject matter jurisdiction over this action pursuant to 15 U.S.C. § 1121 and 28 U.S.C. § 1331 (federal question jurisdiction). 11. This Court has personal jurisdiction over Defendants because they have, directly or through their intermediaries (including distributors, retailers, and others), developed, licensed, manufactured, shipped, distributed, o ered for sale, sold, and advertised their products, including but not limited to the Enhancement Products, in the United States, the State of California and this district. Defendant has purposefully and voluntarily placed these products into the stream of commerce ith the expectation that they ill be purchased in this district. 12. Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part of the events or omissions hich gave rise to the claim Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 14 9 9 1642 occurred in this district. PARTIES 13. Plainti Outla Laboratory, LP is a Texas limited partnership organized under the la s of the State of Texas. 14. Upon information and belief, defendant [DISTRIBUTOR REDACTED] 15. Upon information and belief, defendant [SUPPLIER REDACTED] 16. Upon information and belief, defendant Sunset Liquor is an entity of un no n type ith its principal place of business located at 985 Broad ay Ste L, CHULA VISTA CA 91911. 17. Plainti is ignorant of the true names and capacities of defendants sued herein as Does 1- 10, inclusive, and therefore sued these defendants by such ctitious names. Plainti ill amend this Complaint to allege their true names and capacities hen ascertained. Plainti is informed and believes and thereon alleges that each of these ctitiously named defendants is responsible in some manner for the occurrences herein alleged, and that Plainti s injuries as herein alleged ere proximately caused by the aforementioned defendants. FACTUAL ALLEGATIONS Sildena l 18. The FDA has approved sildena l for treatment of erectile dysfunction. Ho ever, because of no n side e ects, drug interactions and contraindications, the FDA has deemed these drugs to be prescription drugs. 19. The serious side e ects of sildena l include, for example, priapism (i.e., prolonged penile erections leading to tissue death and potential permanent erectile dysfunction), severe hypotension (i.e., lo blood pressure), myocardial infarction (i.e., heart attac ), ventricular arrhythmias, stro e, increased intraocular pressure (i.e., increased eye uid pressure), anterior optic neuropathy (i.e., permanent optic nerve Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 0 1642 damage), blurred vision, sudden hearing loss, and dizziness. 20. The serious negative drug interactions of sildena l include, for example, (i) interacting ith al yl nitrites and alpha-1 bloc ers to cause angina and life-threatening hypotension, (ii) interacting ith protease inhibitors to increase the incidence and severity of side e ects of sildena l alone, and (iii) interacting ith erythromycin and cimetidine to cause prolonged plasma half-life levels. 21. In addition to these ris s, contraindications of sildena l include underlying cardiovascular ris factors (such as recent heart surgery, stro e or heart attac ) since consumption of sildena l by individuals ith these conditions can greatly increase the ris of heart attac . 22. Because of these dangerous side e ects, drug interactions and contraindications, the advice and authorization of appropriate licensed medical professionals is absolutely crucial for the safe consumption of sildena l. Without such safeguards, the consequences can be dire. Indeed, the sale of mislabeled sildena l has led to multiple deaths reported in the media. Defendants’ Conspiracy 23. The Supplier Defendants are holesale suppliers and distributors of various sexual enhancement supplements, hich are often imported from China, rarely contain any manufacturer information on their pac aging and contain hidden drug ingredients. The Supplier Defendants distribute the Enhancement Products through a net or of coconspirators, named herein as co-defendants (the Conspiracy Defendants ), ho o n and operate independent businesses selling the Enhancement Products, and pro t from the sale of the illegal and dangerous products. 24. The Supplier Defendants contact retailers such as Sunset Liquor and o er the Enhancement Products for sale. The Enhancement Products are high-margin products and as such are situated at or near the chec out counter. The Enhancement Products are all subject to FDA public announcements regarding their illicit contents; ho ever, the Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 1 1642 Conspiracy Defendants still participate in their sale, due to their pro tability. Defendants’ False Statements Regarding The Enhancement Products 25. Sunset Liquor is an o ner and operator of the Retail Location, hich advertises and o er for sale various sexual enhancement supplements, including ithout limitation, Blue Diamond. 26. The Enhancement Products claim that they are all natural and have limited side e ects. Ho ever, such claims are materially false and misleading. Contrary to Defendants statements, recent FDA laboratory analyses have con rmed that the Enhancement Products contain sildena l, a synthetic pharmaceutical ith profound side e ects. 27. Defendants false statements and advertising pose extreme health ris s to consumers in at least t o ays. First, by stating that no prescription is necessary to consume the Enhancement Products, Defendants mislead consumers into believing that the advice and authorization of a licensed medical professional is not required to mitigate or avoid the potentially life-threatening side e ects, drug interactions andcontraindications of sildena l hidden in the Enhancement Products. Second, by failing to inform consumers that the Enhancement Products contain sildena l, consumers ho no that their medical history and drug prescriptions ma e sildena l consumption dangerous may nevertheless consume the Enhancement Products because they are una are that they contain sildena l. 28. Accordingly, Defendants false and misleading advertising is extremely dangerous to individual consumers and harmful to the dietary supplement industry as a hole. Defendants have created an illegitimate mar etplace of consumers see ing to enhance their sexual performance but ho are not informed, or ho are misinformed, of the serious dangers of using Defendants Enhancement Products. Consumers of the Enhancement Products have little or no incentive to use safe and legitimate sexual Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 2 1642 performance enhancement products, such as TriSteel or TriSteel 8hour, until they are injured or Defendants Enhancement Products are ta en o of the shelves. Plainti s Dietary Supplements: TriSteel and TriSteel 8hour 29. Plainti Outla is a manufacturer of all-natural dietary supplements. Plainti manufactures and o ers for sale TriSteel and TriSteel 8hour, male sexual performance enhancement supplements that promote increased sexual desire and stamina. The ingredients in TriSteel are Epimedium Extract (leaves), Yohimbe Extract (8mg Yohimbine Al aloids), anthoparmelia Scarbrosa Extract (Lichen), amma Amino Butyric Acid ( ABA), L-Arginine, elatin, Cellulose, Magnesium Stearate and Silica. Plainti sells TriSteel and TriSteel 8hour through its ebsite .outla laboratory.com, as ell as through many other online and storefront retail locations across the United States. CLAIMS FOR RELIEF FIRST CLAIM FOR RELIEF (False Advertising in Violation of Section 43(a)(1)(B) of the Lanham Act) 30. Plainti incorporates the allegations contained in the foregoing paragraphs as though fully set forth herein in their entirety. 31. Defendants have no ingly and purposely made false and misleading descriptions of fact concerning the nature, characteristics and qualities of the Enhancement Products by, ithout limitation, commercially mar eting and claiming that the Enhancement Products that they sell are safe and natural dietary supplements that ill enhance a consumer s sexual performance ithout requiring a doctor s prescription, all hile purposefully omitting that (a) the Enhancement Products contain sildena l and therefore cannot be dietary supplements, (b) sildena l is not naturally occurring, (c) sildena l is a prescription drug requiring the prior authorization of a licensed medical professional, and (d) consumption of sildena l ithout consultation and advice from a licensed medical professional poses extreme health ris s, including ithout limitation, Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 3 1642 hypotension, heart attac and death. 32. The use of such false, misleading and disingenuous mar eting has the tendency to deceive a substantial segment of the public and consumers, including those in this district, into believing that they are purchasing a product ith di erent characteristics. 33. This deception is material because: (i) it is li ely to in uence a consumer s purchasing decision, especially if the consumer (a) is loo ing for an all-natural sexual enhancement dietary supplement, (b) is purchasing the Enhancement Products out of an attempt to avoid Sildena l because the consumer no s that Sildena l poses special health ris s given such consumer s medical history or current drug prescriptions, and or (c) ants to avoid ta ing any prescription drugs, generally, but especially ithout the supervision of a licensed medical professional; and (ii) such decision could lead to dangerous and unanticipated health consequences for such consumers. 34. Defendants have introduced their false and misleading statements into interstate commerce via mar eting and advertising on product pac ages and labels, and on display cases placed in Retail Locations in the state of California. 35. Plainti has been injured as a result of Defendants false and misleading statements. Speci cally, Defendants false and misleading advertising concerning the Enhancement Products has negatively impacted Plainti s sales of TriSteel and TriSteel 8hour because both products are intended for sexual performance enhancement and target the same consumers. Thus, Plainti has su ered both an ascertainable economic loss of money and reputational injury by the diversion of business from Plainti to Defendants and the loss of good ill in Plainti s products. Moreover, Defendants conduct has created reputational damage in that Defendants misconduct damages the industry as a hole and has the tendency to disparage Plainti s products and good ill. 36. Defendants actions, as described above, constitute false and misleading descriptions and misrepresentations of fact in commerce that, in commercial advertising Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 4 1642 and promotion, misrepresent the nature, characteristics, and qualities of its products in violation of Section 43(a)(1)(B) of the Lanham Act. SECOND CLAIM FOR RELIEF (Violation of the Civil Rac eteer In uenced and Corrupt Organi ations Act) 37. Plainti incorporates the allegations contained in the foregoing paragraphs as though fully set forth herein in their entirety. 38. Defendants are engaged in a conspiracy and scheme to defraud and mislead consumers by ay of their false and misleading labeling and advertisements concerning the Enhancement Products, hich they unla fully distribute, mar et, and o er for sale no ing that the products contain illicit ingredients. Thus, Defendants have a plan or scheme to defraud and intent to defraud. 39. Due to the nature of the scheme, it is reasonably foreseeable that the mail or ires ill be used, and, in fact, defendants have used the mail or ires to further the scheme on multiple occasions in purchase orders sent and received and in the unla ful importation and distribution of sildena l. Thus, Defendants have engaged in mail fraud as de ned in § 1961(1). 40. As detailed above, Defendants mislabel, advertise, and o er for sale the Enhancement Products as dietary supplements. Defendants falsely claim that these products are natural and do not require a prescription, among other misrepresentations. Defendants ma e these misrepresentations despite the fact that they no that such products unla fully contain hidden prescription drug ingredients. 41. Indeed, Defendants fail to disclose that the Enhancement Products contain drug ingredients. The sale of products containing undisclosed drug ingredients ( ithout requiring a prescription and ithout informing consumers of the health and safety ris s of these drugs) is unla ful and seriously endangers consumers. In this regard, Defendants also fail to disclose any of the adverse health consequences of ta ing sildena l. Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 5 1642 According to the FDA, these undisclosed ingredients may interact ith nitrates found in some prescription drugs such as nitroglycerin and may lo er blood pressure to dangerous levels, among other negative side e ects. 42. Thus, Defendants mar et and sell the Enhancement Products using false and fraudulent labeling claims and representations, using the ires, in violation of federal la . 43. Defendants have no ingly imported, purchased, and sold the Enhancement Products to be delivered by commercial interstate carrier, including but not limited to, use of the mails in furtherance of their scheme to defraud and mislead consumers of their products. 44. Defendants have violated the substantive RICO statute, 18 U.S.C.A. § 1962, as detailed above by receiving income from a pattern of rac eteering activity involving interstate commerce, ires, and electronic communications. 45. Plainti has been injured in its business or property by reason of Defendants violation of section 1962 by, inter alia, the massive diversion of sales to Defendants, hich sell products directly in competition ith Plainti s products, including the Enhancement Products at issue here. PRAYER Wherefore, plainti Outla prays for judgment against Defendants as follo s: 46. For preliminary and permanent injunctive relief enjoining Defendant from producing, licensing, mar eting, and selling any of the Enhancement Products, including but not limited to, [FDA BANNED PRODUCTS]; 47. For an a ard of compensatory damages to be proven at trial in accordance ith 15 U.S.C. § 1117; 48. For an a ard of any and all of Defendant s pro ts arising from the foregoing acts in accordance ith 15 U.S.C. § 1117 and other applicable la s; 49. For restitution of Defendant s ill-gotten gains; Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 6 1642 50. For treble damages in accordance ith 15 U.S.C. § 1117; 51. For treble damages in accordance ith 18 U.S.C. § 1964; 52. For punitive damages; 53. For costs and attorneys fees; and 54. Any other relief the Court may deem appropriate. DATED: 12 15 2017 TAULER SMITH LLP By: s Leticia Kimble Leticia Kimble, Esq. PLAINTIFF OUTLAW LABORATORY, LP Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 7 1642 DEMAND FOR JURY TRIAL Plainti hereby demands a trial by jury. DATED: 12 15 2017 TAULER SMITH LLP By: s Leticia Kimble Leticia Kimble, Esq. PLAINTIFF OUTLAW LABORATORY, LP Ou tlaw Labo rato ry Su p p le m e n tal Pro d u ctio n 0 0 0 150 8 1642
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