Nutrition Distribution, LLC v. Southern SARMs, Inc.

Citation: Not availableDocket: B280983

Court: California Court of Appeal; January 30, 2018; California; State Appellate Court

Original Court Document: View Document

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Nutrition Distribution, LLC initiated a lawsuit against Southern SARMs, Inc. in April 2016, alleging unfair competition and false advertising related to Southern SARMs’ marketing of its product MK-2866 Ostarine. Nutrition Distribution claimed that Southern SARMs misbranded this selective androgen receptor modulator (SARM) by promoting it as a miracle dietary supplement for bodybuilders, despite labeling it as not intended for human consumption. The complaint argued that Southern SARMs falsely advertised Ostarine as providing benefits similar to anabolic steroids without the accompanying negative side effects. As a result of these allegations, Nutrition Distribution sought various remedies, including compensatory damages, recovery of profits from deceitful marketing, restitution of Southern SARMs’ gains, injunctive relief to prevent further distribution of Ostarine and other similar products, and attorney fees. The appeal from Southern SARMs concerning a postjudgment motion for sanctions was denied by the trial court due to a failure to provide the required 21-day pre-motion notice, a requirement established under Code of Civil Procedure section 128.5, which mandates compliance with the standards set forth in section 128.7. The appellate court affirmed the trial court's ruling, confirming that the waiting period applies to sanctions related to actions that could be corrected.

Southern SARMs and Nutrition Distribution engaged in discussions regarding Southern SARMs's anticipated motion to strike and demurrer to Nutrition Distribution's complaint. Subsequently, Nutrition Distribution filed a first amended complaint reiterating the same two causes of action, seeking Southern SARMs's profits, restitution of alleged ill-gotten gains, and broad injunctive relief, while eliminating claims for compensatory damages and attorney fees. The amended complaint also changed its assertion regarding Southern SARMs’s marketing of Ostarine, instead stating that the product was under FDA investigation as a new pharmaceutical drug and omitting previous allegations of violations of the Food, Drug, and Cosmetic Act.

Southern SARMs demurred to the amended complaint, arguing that Nutrition Distribution was not entitled to the requested relief. They contended that the monetary recovery sought constituted standard tort damages, non-recoverable in unfair competition or false advertising claims. Southern SARMs asserted that Nutrition Distribution failed to show wrongful acquisition of money for which restitution could be claimed. Additionally, they argued that the request for injunctive relief was excessively broad, seeking a complete ban on all products containing selective androgen receptor modulators rather than focusing on specific false or misleading advertising of Ostarine. Southern SARMs also sought sanctions against Nutrition Distribution for frivolous claims, arguing that their pleadings were legally insufficient.

The court ultimately sustained Southern SARMs's demurrer without leave to amend, denied requests for sanctions, and allowed Southern SARMs the option to file a separate motion for sanctions. A judgment and order of dismissal were entered on September 15, 2016. During the same hearing, the court denied Nutrition Distribution’s motion for a preliminary injunction and deemed Southern SARMs’s motion to strike moot. Nutrition Distribution appealed the dismissal, which was affirmed, as they did not allege sufficient facts to warrant restitution or the broad injunctive relief requested.

Southern SARMs filed a motion for sanctions against Nutrition Distribution on November 17, 2016, citing section 128.5, alleging that Nutrition's complaint lacked factual support and that it continued to include unwarranted claims despite Southern's attempts to resolve the issues. Southern further argued that Nutrition had a history of filing similar frivolous lawsuits to harm competitors and accused Nutrition's attorney of making unethical remarks. In support of its motion, Southern referenced the case San Diegans for Open Government v. San Diego, asserting that the waiting period required for sanctions under section 128.7 did not apply to their motion under section 128.5. Nutrition opposed the motion, claiming it was untimely since it was filed after the court’s judgment and asserted that its claims were legitimate and not made in bad faith. In its reply, Southern reiterated that the case law cited by Nutrition was irrelevant as it pertained to section 128.7. The court ultimately denied the motion on January 9, 2017, citing the Safe Harbor Rule, leading Southern to file a timely notice of appeal. 

Section 128.5, which allows for sanctions due to bad faith actions, was originally enacted in 1981 and had undergone amendments, including a revival in 2014. It allows courts to impose sanctions for frivolous actions or tactics intended to cause delay, while former subdivision (f) indicated that sanctions should align with the standards set forth in section 128.7.

A motion for sanctions under section 128.7, subdivision (c)(1) must be filed separately and detail the specific misconduct alleged. The moving party must serve the motion on the opposing party without presenting it to the court, which triggers a 21-day safe harbor period during which the offending document can be corrected or withdrawn without penalty. If corrections are made, the sanctions motion cannot be filed. This mandatory safe harbor period is essential for awarding sanctions unless a court order shortens the time.

In the case of *San Diegans for Open Government*, the appellate court addressed former subdivision (f) of section 128.5, ruling that it did not require compliance with the 21-day safe harbor period of section 128.7 for motions under section 128.5. The court provided three reasons for this conclusion: 

1. The language of section 128.7, subdivision (c) pertains to who can be sanctioned and whether due diligence was exercised, without explicitly requiring adherence to the safe harbor provisions for section 128.5 motions.
2. Legislative history revealed no intent to incorporate the safe harbor requirement into section 128.5, suggesting that such a prerequisite would have been explicitly mentioned if intended.
3. Section 128.7 is limited to misconduct in signed pleadings, while section 128.5 addresses a broader scope of bad faith actions, making the application of a safe harbor period impractical in some cases.

Former subdivision (f) mandates that courts imposing sanctions must follow the 'standards, conditions, and procedures' outlined in section 128.7, subdivisions (c), (d), and (h). This requirement includes all conditions in subdivision (c), specifically those in paragraphs (1) and (2), as long as they align with section 128.5's other requirements. Legislative history confirms the intent to incorporate a safe harbor provision into the revised section 128.5, effective January 1, 2015. Initially, Assembly Bill No. 2494 did not reference section 128.7, but opposition from public interest organizations highlighted concerns that the absence of a safe harbor in section 128.5 would hinder necessary litigation. In response to these concerns, the bill was amended to add subdivision (f), which was intended to clarify the bill's alignment with section 128.7, ultimately addressing opposition and indicating a legislative intent to incorporate the safe harbor provisions of section 128.7, subdivision (c).

The 2017 amendment to former subdivision (f) of section 128.5 establishes a safe harbor provision, specifically a 21-day period for parties to withdraw potentially frivolous motions before sanctions can be imposed. This amendment, enacted on August 7, 2017, was intended to clarify legislative intent and harmonize section 128.5 with section 128.7. Legislative reports confirm this intent, emphasizing the need to address inconsistencies in court interpretations of section 128.5 since the enactment of AB 2494. The amendment mandates that motions for sanctions must be filed separately and detail specific conduct warranting sanctions. In the case at hand, Southern SARMs did not provide Nutrition Distribution the opportunity to withdraw its complaint before filing for sanctions, leading the trial court to deny the motion. Consequently, the order denying the sanctions is affirmed, with each party bearing its own appeal costs.