Deficient pleading leads to disappointment

Wellness Publishing v. Barefoot, 2008 WL 108889 (D.N.J.)

Plaintiff Holt is a doctor and, he alleged, an authority on nutritional supplements with a long academic resume. He has a consulting business which owns Wellness Publishing; the plaintiffs all participate in the supplement industry and in health care publishing. Defendants are Kevin Trudeau and related direct marketers.

The allegations of the complaint are these: In early 2000, former defendant Barefoot (with whom plaintiffs settled) solicited Holt to make a nutritional supplement in a joint venture. Barefoot proposed various formulations, and Holt advised him that a number of them were medically unsafe because of excessive doses of vitamin D and toxic metals. Barefoot told Holt he wanted to market a coral calcium supplement, but Holt, concerned with Barefoot’s ethics, demurred. Barefoot promised Holt he’d behave. The parties agreed that Barefoot would make his best efforts to show a product manufactured by Holt Consulting, to be known as Barefoot’s Coral Calcium Plus, and Wellness would own rights in a book, Barefoot on Coral Calcium. The parties’ agreement included a noncompete clause relating to coral calcium. Despite this, however, Barefoot found a better deal and sabotaged the sales of Coral Calcium Plus, including by promoting a competing book and associated items in at least two infomercials created by Barefoot, Trudeau, and the other defendants. On his website, Barefoot also made claims about coral calcium that Holt felt were unlawful.

Plaintiffs alleged copyright infringement. Defendants challenged standing, because in their settlement with Barefoot, plaintiffs transferred their copyright interests back to Barefoot and thus are no longer legal or beneficial owners of the copyright. The settlement agreement does purport to preserve plaintiffs’ rights in accrued legal claims against defendants. The court agreed that a copyright owner can assign its copyright interests but still bring claims that accrued when it owned the copyright. In fact, under Second Circuit precedent, accrued copyright claims don’t transfer with an overall assignment of copyright unless they’re expressly assigned. The transferor remains free to sue as long as it owned the copyright at the time of the infringement.

Defendants’ second argument, about plaintiffs’ failure to allege registration, worked better. Registration is jurisdictional. The complaint, however, failed to allege registration, and Barefoot on Coral Calcium wasn’t registered when the complaint was filed. It was registered Dec. 20, 2002, four months after the initial complaint, yet the second amended complaint did not so allege. Plaintiffs requested leave from the court to file a third amended complaint to correct the deficiency.

The court ruled that it initially lacked subject matter jurisdiction. The question, it thought, was whether plaintiffs could confer such jurisdiction on the court after the limitations period expired by amending the complaint. Some prior cases hold that a registration defect may be cured by amending or supplementing the complaint once registration has occurred. But in none of those cases had the statute of limitations run prior to a plaintiff’s attempt to cure the defect. “[T]he proper course for a plaintiff who has filed a jurisdictionally deficient copyright infringement claim, upon satisfying the jurisdictional prerequisite of registration, is to file a new action.” Some cases, for efficiency purposes, allow amendment instead, but the expiration of the limitations period removes that justification. An amendment cannot relate back to an initial complaint when there was no subject matter jurisdiction over that complaint.

The copyright claims were dismissed.

Plaintiffs also alleged that defendants made false statements about coral calcium and about their rights to sell coral calcium using the Barefoot name, in violation of the Lanham Act’s false advertising provisions. (The court noted in a footnote that the latter claim might not be actionable under §43(a)(1)(B), since claims about a trademark do not relate to “the nature, characteristics, qualities, or geographic origin” of the coral calcium product (citing Monsanto Co. v. Syngenta Seeds, Inc., 443 F.Supp.2d 648, 652 (D.Del. 2006)).

Defendants challenged plaintiffs’ standing. Constitutionally, what is required is an injury in fact, fairly traceable to the defendant’s acts, that will likely be redressed by a favorable decision. Despite an inartfully drafted complaint and minimally argued brief, the court found that these elements were satisfied. Plaintiffs alleged that defendants’ false advertising in their infomercials harmed plaintiffs’ market for coral calcium.

Prudentially, the Third Circuit has developed a multifactor test for assessing standing in Lanham Act false advertising cases when the parties are not direct competitors. Here, plaintiffs make nutritional supplements and publish health care information. Kevin Trudeau appeared in infomercials promoting coral calcium, and the other defendants produced those infomercials. The complaint was unclear about the existence of direct competition. Because the false statements allegedly made in the infomercials directly concerned plaintiffs’ products and could bear on their ability to compete in the marketplace, the court declined to rule against plaintiffs on standing grounds.

The next question was whether Rule 9(b), requiring fraud to be pled with particularity, required dismissal. Plaintiffs, oddly, didn’t dispute that Rule 9(b) applied, but the court noted that there is a division of opinion in the courts on this topic. Some district courts in the Third Circuit have even made up an “intermediate” standard for false advertising claims, furthering the policy of Rule 9(b), and this court followed that lead, though I think this is a mistake. The complaint’s recitation of the words of the Lanham Act, the court ruled, failed that standard. And the mere allegation of “false and misleading statements” in defendants’ books and videos was insufficient, because it didn’t give enough detail about the false statements and didn’t even clearly relate to goods, services, or commercial activities.

Plaintiffs identified some allegedly false claims about coral calcium, including that coral calcium supplements “will cure cancer.” But the court found these insuffient, because the false statements alleged in the Lanham Act count purportedly referred to a specific brand of coral calcium, not coral calcium generally. A competitor who did not sell coral calcium, but sold some other supplement or anti-cancer product, could easily base a Lanham Act false advertising claim on these statements, but it’s harder to see why these plaintiffs should have a claim, even though defendants’ false advertising about coral calcium generally could definitely have a negative effect on the overall market for coral calcium if consumers decided that the claims were all snake oil.

Plaintiffs’ fraud claims also failed. Plaintiffs alleged that defendants’ false claims about coral calcium deceived vulnerable members of the public. But they failed to plead with sufficient particularity, and they also didn’t allege harm to themselves from the fraud, as opposed to harm to the direct victims of the fraud who relied on the false claims.

Plaintiffs’ tortious interference claims were also dismissed, because plaintiffs failed to allege wrongful/malicious conduct on the defendants’ part that induced Barefoot to breach his noncompete agreement. (The court did, however, reject defendants’ mistaken argument that this claim was preempted by the Copyright Act.)

Plaintiffs’ New Jersey common law unfair competition law claims were no more successful. Though the New Jersey tort is amorphous, a basic requirement is some kind of misappropriation of property, plus bad faith or malicious conduct. Here, there was no misappropriation, despite the allegedly misleading statements.