Peak Health Center v. Dorfman

Background

Peak Health Center sued Brandon Dorfman and Doe defendants over a February 22, 2019 article published on the PotNetwork website. The article questioned Peak Health’s claims that its products contained cannabidiol, or CBD, derived from the hops plant Humulus yunnanensis. It also accused Peak Health’s principal, Bomi Joseph, of plagiarism, fraud, and using a false name on a passport application.

Peak Health’s amended complaint asserted five claims: trade libel; intentional interference with prospective economic advantage; negligent interference with prospective economic advantage; unfair competition under the federal Lanham Act; and unfair competition under California Business and Professions Code section 17200. Peak Health alleged that the article harmed its reputation and caused at least $10 million in lost business opportunities.

Dorfman moved to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6). Rule 12(b)(6) tests whether a complaint states a legally sufficient claim, while Rule 9(b) requires allegations of fraud to identify the details of the alleged misconduct. Dorfman also requested judicial notice of several documents and filed a motion under California’s anti-SLAPP law, which provides a procedure for challenging lawsuits based on protected speech or petitioning activity.

Judicial Notice

The court granted in part and denied in part Dorfman’s request for judicial notice. It allowed judicial notice of a second copy of the article because it was easier to read and did not substantively differ from the copy attached to the complaint. The court denied judicial notice of the other requested materials because it did not need to rely on them to decide the motions.

Motion to Dismiss

The court concluded that Peak Health failed to state claims for trade libel and intentional and negligent interference with prospective economic advantage. Those claims required specific allegations of lost customers, transactions, or business relationships. Peak Health instead alleged general losses involving unidentified existing and potential clients, customers, and business partners.

The court also concluded that Peak Health failed to state either possible type of Lanham Act claim. The complaint did not show false association because it did not suggest that Dorfman’s article misrepresented the manufacturer or source of Peak Health’s products. The complaint also did not show false advertising because the article appeared to be an investigative news report, not commercial advertising or promotion of PotNetwork’s products. An alleged competitive relationship and possible economic incentive were not enough to make the article commercial speech.

Peak Health’s California unfair-competition claim proceeded under the statute’s unlawful-practice prong. That prong depends on an underlying violation of another law. Because the court found that Peak Health had not adequately pleaded any other claim, it also found that Peak Health failed to state an unlawful-practice claim under section 17200.

First Amendment Analysis

Dorfman argued that the First Amendment protected all seven challenged statements. The court applied the standard for determining whether statements of opinion contain provably false factual assertions. It found that statements 3, 6, and 7 used hyperbolic language that was not readily capable of being proved true or false and therefore received First Amendment protection. Statements 1, 2, 4, and 5 primarily concerned whether Peak Health’s products actually contained CBD derived from a hops plant and could be proved true or false, so the court did not find them protected on that basis.

The court also rejected Dorfman’s argument that all seven statements were protected opinions merely because the article described facts supporting them. The court said that Dorfman’s conclusion that Peak Health’s hops-derived CBD was a sham was presented as an assertion of fact based on other asserted facts, rather than as a subjective assessment. The court ultimately did not rely on First Amendment protection for all seven statements as the basis for its disposition.

Rule 9(b)

The court held that all of Peak Health’s claims were based on the same alleged false or misleading statements and therefore sounded in fraud. Peak Health adequately identified who made the statements, what the statements were, where they were published, and when they were published. But it did not plead facts explaining why the challenged statements were false or misleading. Alleging that the public-relations agency supplied Dorfman with “proof,” and that one source had not tested Peak Health’s products or competed with Peak Health, was not enough.

Because Peak Health failed to satisfy Rule 9(b), the court granted the motion to dismiss.

Leave to Amend

The court granted Peak Health leave to amend. It stated that the deficiencies might be cured by alleging specific lost customers or transactions, facts showing that the article was commercial advertising or promotion, all challenged statements, and facts supporting the claim that those statements were false or misleading. Peak Health could not add new claims or parties without first obtaining the court’s permission.

Anti-SLAPP Motion

The court denied without prejudice Dorfman’s anti-SLAPP motion to strike and his request for attorney’s fees and costs. Because Peak Health was being given leave to amend, deciding the anti-SLAPP motion at that stage could conflict with the federal rule favoring liberal amendment of pleadings. Dorfman could renew the motion if Peak Health included amended state-law claims in its second amended complaint.

Disposition

Judge Virginia K. Demarchi ordered that: (1) Dorfman’s motion to dismiss was granted with leave to amend; (2) his request for judicial notice was granted in part and denied in part; and (3) his anti-SLAPP motion to strike was denied without prejudice. Peak Health could file a second amended complaint by November 26, 2019.