Judge Elaine W. Mandel, Case 19SMCV02184 2023-03-30 Tentative Ruling

Judge: Elaine W. Mandel, Case: 19SMCV02184, Date: 2023-03-30 Tentative Ruling

Case Number: 19SMCV02184 Hearing Date: March 30, 2023 Dept: P

Tentative Ruling

Grasshopper House, LLC v. Clean & Sober Media LLC, Case No. 19SMCV02184

Hearing Date March 30, 2023

Defendants’ Demurrer to First Amended Complaint

Plaintiff Grasshopper House, which operates the addiction treatment facility Passages, alleges defendants operated a website called “The Fix,” which purported to provide reviews of drug rehabilitation centers. Grasshopper alleges The Fix published biased reviews in order to steer customers towards Cliffside Malibu, a rehabilitation center owned by defendant Taite, and away from competitors such as Passages. Grasshopper alleges The Fix published a review about Passages that wrongfully concealed its bias, falsely stated its review of Passages was based on written surveys from former patients and failed to disclose that its reviews were really advertising for Cliffside. Plaintiff made the same allegations in a federal case under the Lanham Act (51 US §1051, et seq.) filed in 2018.

Defendants demur to the first amended complaint (FAC), arguing issue preclusion and statute of limitations.

Preclusion

Issue preclusion – or collateral estoppel -- prevents relitigating issues argued and decided in prior proceedings. Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 481. Issue preclusion arises when (1) the issue raised is identical to that decided in the former proceeding, (2) the issue was actually litigated in the former proceeding, (3) the issue was necessarily decided in the former proceeding, (4) the decision in the former action was final and on the merits, and (5) preclusion is sought against a person who was a party to or in privity with a party in the former proceeding. Id. Issue preclusion only bars relitigation of issues actually argued and decided in the prior action, not issues that could have been but were not decided. Planning and Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 226.

Claim preclusion – or res judicata -- prevents relitigating issues that were or could have been decided in a prior suit. Louie v. Commercial Operations, LLC (2009) 178 Cal.App.4th 1544, 15554. Claim preclusion only applies when the present proceeding is on the same cause of action as the prior proceeding. Planning and Conservation League, supra, 180 Cal. App.4th at 226.

Defendants argue the libel, false advertising and unfair competition claims were already decided in the federal case, Grasshopper House, LLC v. Clean & Sober Media LLC, et al. (C.D. Cal. 2019) No. 2:18-cv-00923-SVW-RAO. The jury found defendants violated the Lanham Act, entitling Grasshopper to injunctive relief. The court and jury found Grasshopper suffered no monetary damages. Plaintiff’s Exh. F.

Those findings were affirmed on appeal. Plaintiff’s Exh. G. Defendants argue all claims in this action, besides the anti-kickback claim, are barred by issue preclusion, since the federal case concluded there were no damages, and all relevant claims in the FAC include a damages element.

Defendants acknowledge the federal court declined to extend jurisdiction over Grasshopper’s state causes of action for libel per se, false advertising and unfair competition, but argue the findings regarding damages precludes those claims. Additionally, they argue the cause of action for libel per se is substantively a claim for trade libel, which also requires proof of damages.

Grasshopper does not dispute the federal Lanham Act claim was based on the same facts as this action, and the federal jury found no monetary damages. Grasshopper argues, however, the federal claim did not address categories of damages unavailable under the Lanham Act. Plaintiff seeks those categories of damages here and argues they were not available in the federal case, so are not subject to issue preclusion.

A plaintiff who successfully proves a Lanham Act violation is entitled to “any damages” that resulted from the violations. 15 U.S.C. §1117(a). Nonetheless, issue preclusion does not apply here. Defendants admit that in the federal case Grasshopper only pursued damages consisting of lost profits, profit disgorgement and attorney’s fees. Other damage categories were not litigated. Defendants argue because Grasshopper could have but did not pursue those other categories of damages in the federal case, it is barred from pursuing them here.

This argument fails. Defendants conflate issue preclusion with claim preclusion. Issue preclusion applies only when an issue was actually decided in a prior action. Claim preclusion, on the other hand, applies to issues not actually litigated but which could have been litigated in the prior action. Requests for lost profits, disgorgment and attorney’s fees here is subject to issue preclusion, since those were the categories of damages decided in federal court. Other categories of damages were not actually litigated or decided, so are not subject to issue preclusion.

Claims are only precluded when they are based on the same cause of action as the prior action. This claim is based on different causes of action than the federal case. The federal court explicitly declined to exercise jurisdiction over the state causes of action. The state claim is based on those state causes of action, which were not part of the prior federal claim. Claim preclusion does not apply, and damages which could have been but were not pursued in the prior action are not precluded here.

Of course, plaintiff cannot use this forum to reargue issues already decided by the federal court. The federal court decided three categories of damages -- disgorgement, attorney’s fees and lost profits. Since the federal court did not reach a final decision on other categories of damages, plaintiff’s claims are not barred by issue preclusion. Since this action is based on different causes of action than the federal case, plaintiff is not precluded from arguing categories of damages that could have been but were not previously argued. OVERRULED.

Statute of Limitations

Defendants argue all causes of action are time-barred because the alleged false review was published in 2011. Grasshopper alleges it did not become aware of the review until November 2017, when media outlet The Verge published an article about Cliffside. FAC ¶¶40-41. The federal lawsuit was filed in 2018, tolling the statute of limitations for the libel claims. Sales v. City of Tustin (2021) 65 Cal.App.5th 265, 272. The court cannot determine on demurrer whether plaintiff’s delayed discovery was reasonable; plaintiff’s 2017 discovery is a factual allegation, which must be treated as true on demurrer.

Defendants argue that even if delayed discovery applies, plaintiff’s anti-kickback claim under Cal. Bus. & Prof. Code §17045 is time-barred because it does not relate back to the federal pleading, and the statute of limitations is not tolled. Claims relate back to prior pleadings as long as “they arise factually from the same injury” as the original cause of action. E.g., Dudley v. Dep’t. of Transp. (2001) 90 Cal.App.4th 255, 266. Since the anti-kickback cause of action is based on the same injury alleged in the federal case, it relates back. OVERRULED.

Defendants to answer within 20 days.