Charlotte's Web, Inc. v. AAXLL Supply Co LLC

Background

Charlotte’s Web, Inc. moved to dismiss and strike portions of AAXLL Supply Co. LLC’s amended answer and counterclaims. AAXLL identified itself in the pleading as doing business as Balance CBD and alleged that it competed with Charlotte’s Web in selling hemp wellness products. The court considered the parties’ briefing and oral arguments held on November 10, 2020.

Counterclaims

The court granted the motion to dismiss the second, third, and eighth counterclaims, but allowed AAXLL to amend them.

For the second and third counterclaims, which were based on the federal Lanham Act, the court found that AAXLL had adequately alleged constitutional standing because it alleged that it was a competitor. However, the court held that AAXLL had not adequately alleged the required commercial injury, competitive harm, or a sufficiently direct connection between Charlotte’s Web’s alleged conduct and AAXLL’s harm. The court described the allegations as vague and speculative and noted that other possible causes could explain any decline in sales.

For the eighth counterclaim, based on California’s Unfair Competition Law, the court held that AAXLL had not adequately alleged that it suffered an injury in fact or lost money or property because of Charlotte’s Web’s conduct. The court granted leave to amend this counterclaim as well.

Affirmative defenses

The court granted the motion to strike the first and third affirmative defenses without leave to amend. It found that the first defense, priority of use, duplicated AAXLL’s tenth defense based on illegality and could not be adequately amended. AAXLL did not contest striking the third defense, labeled deceptive misdescriptive.

The court denied the motion to strike the sixth, seventh, and eighth affirmative defenses—acquiescence, waiver, and estoppel. It found that these defenses were not appropriately removed at that stage, particularly because neither party cited authority that foreclosed AAXLL from relying on them or on Charlotte’s Web’s past actions involving other entities and individuals.

The court granted the motion to strike the twelfth affirmative defense, failure to mitigate damages, but allowed AAXLL to amend it. The court held that the defense lacked enough factual allegations showing that it applied.

Order

The court granted in part and denied in part Charlotte’s Web’s motion to dismiss and strike. It ordered AAXLL to file a third amended answer and counterclaims within 21 days of the order, after which Charlotte’s Web had 21 days to respond. The order terminated Docket Number 55.