KWAN v. SANMEDICA INTERN.

OPINION

ERICKSON, District Judge:

Serena Kwan appeals from the district court judgment dismissing her second amended complaint for failing to state a claim upon which relief can be granted.1 The district court correctly concluded that California law does not provide for a private cause of action to enforce the substantiation requirements of California's unfair competition and consumer protection laws. Further, the district court did not err in concluding that Kwan's second amended complaint failed to allege facts that would support a finding that SanMedica International's claims regarding its product, SeroVital, were actually false. Accordingly, we AFFIRM.

BACKGROUND FACTS AND PROCEDURAL HISTORY

On July 21, 2014, Plaintiff/Appellant, Serena Kwan, an Individual, On Behalf of Herself and All Others Similarly Situated ("Kwan"), filed a class action against Defendants/Appellees, SanMedica International, LLC ("SanMedica"), a Utah Limited Liability Company, and Sierra Research Group, LLC ("Sierra"), a Utah Limited Liability Company, alleging violations of California's Unfair Competition Law ("UCL") and California's Consumers Legal Remedies Act ("CLRA"). Kwan filed a first amended complaint on August 27, 2014. The amended complaint was based on an allegation that the defendants falsely represented that their product, SeroVital, provides a 682% mean increase in Human Growth Hormone ("HGH") levels, that it was clinically tested, and that "peak growth hormone levels" are associated with "youthful skin integrity, lean musculature, elevated energy production, [and] adipose tissue distribution."

On October 7, 2014, Sierra filed a motion under rule 12(b)(2) to dismiss for lack of jurisdiction. On October 16, 2014, Kwan filed a notice of voluntary dismissal of Sierra pursuant to rule 41(a)(1)(A)(I), Fed. R. Civ. P.

The court granted SanMedica's motion to dismiss with leave to amend. The court reasoned that the first amended complaint was based entirely on allegations related to whether SanMedica's claims regarding its product, SeroVital, were properly substantiated. Citing Cal. Bus. & Prof. Code § 17508, the court stated: "Individuals may not bring suit under the UCL or the CLRA alleging only that advertising claims lack substantiation" because that "right is reserved to `the Director of Consumer Affairs, the Attorney General, any city attorney, or any district attorney....'" The court instructed that if Kwan chose to amend her complaint, "she must allege facts from which the [c]ourt can conclude that Defendant's advertising representations were false." The court continued, "it is not enough for Plaintiff to attack the methodology of Defendant's study; instead, she must allege facts affirmatively disproving Defendant's claims." The court advised:

Kwan filed a second amended complaint against SanMedica International, LLC, on December 1, 2014. In the second amended complaint, Kwan continues to maintain the two counts. Count one alleges violations of the California Unlawful Business and Practices Act. Count two alleges violations of the California Consumers Legal Remedies Act. Among several paragraphs containing conclusions of law and sweeping arguments, the second amended complaint contains the following material factual allegations:

Although the second amended complaint alleges that Kwan purchased SeroVital, it does not allege that she, or any of the purported class members, ever actually used the product.

SanMedica filed a motion to dismiss the second amended complaint under rule 12(b)(6), Fed. R. Civ. P., for failure to state a claim upon which relief can be granted. Because the second amended complaint failed to specifically allege facts to support a finding that SanMedica's claims regarding SeroVital were actually false, the court concluded that Kwan was again merely alleging lack of substantiation. Because Kwan had been provided "the opportunity to amend her complaint, and she has once again failed to allege facts from which the [c]ourt could conclude that Defendant's advertising representations were false," the court dismissed the matter with prejudice. Kwan timely appealed.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo the district court's judgment granting a 12(b)(6) motion for failure to state a claim upon which relief can be granted. Johnson v. Fed. Home Loan Mortg. Corp., 793 F.3d 1005, 1007 (9th Cir. 2015). This court may affirm the dismissal "based on any ground supported by the record." Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008). A dismissal under rule 12(b)(6) "may be based on either a `lack of a cognizable legal theory' or `the absence of sufficient facts alleged under a cognizable legal theory.'" Id. at 1121-22 (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)).

"The task of a federal court in a diversity action is to approximate state law as closely as possible in order to make sure that the vindication of the state right is without discrimination because of the federal forum." Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980); accord U.S. Fidelity and Guaranty Co. v. Lee Investments LLC, 641 F.3d 1126, 1133 (9th Cir. 2011) ("Perhaps a better way of putting it is to say that one of the goals in deciding state law questions is to do no harm to state jurisprudence."). "[F]ederal courts are bound by the pronouncements of the state's highest court on applicable state law." Ticknor v. Choice Hotels, Inc., 265 F.3d 931, 939 (9th Cir. 2001). Similarly, a federal court is "not free to reject a state judicial rule of law merely because it has not received the sanction of the state's highest court, but it must ascertain from all available data what the state law is and apply it." Estrella v. Brandt, 682 F.2d 814, 817 (9th Cir. 1982). "An intermediate state appellate court decision is a `datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.'" Id. at 817 (quoting West v. A.T.&T. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 85 S.Ct. 139 (1940)); see also Lewis v. Tel. Empl. Credit Union, 87 F.3d 1537, 1546 (9th Cir. 1996) (citing In re Kirkland, 915 F.2d 1236, 1239 (9th Cir. 1990) to recognize that "... where there is no convincing evidence that the state supreme court would decide differently, `a federal court is obligated to follow the decisions of the state's intermediate appellate courts'").

DISCUSSION

1. Whether the California law regulating advertising provides a cause of action for private citizens alleging that marketing claims lack proper scientific substantiation.

The UCL provides:

Cal. Bus. & Prof. Code § 17508. The UCL does not provide a private cause of action unless a person suffers an injury in fact as a result of unfair competition:

Cal. Bus. & Prof. Code § 17204.

The CLRA "shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection." Cal. Civ. Code § 1760. The CLRA proscribes certain "unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer...." Cal. Civ. Code § 1770(a). Specific to the case at hand, the CLRA prohibits representing that goods have approval, ingredients, uses, or benefits "which they do not have" or representing that goods "are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another." Cal. Civ. Code § 1770(a)(5) and (7). The CLRA provides: "Any consumer who suffers any damage as a result of the use or employment of a method, act, or practice declared unlawful by Section 1770 may bring an action against that person to recover or obtain" relief including actual damages, enjoining of "methods, acts, or practices", restitution, punitive damages, or any "other relief that the court deems proper." Cal. Civ. Code § 1780(a).

The California Supreme Court recognizes that both the UCL and the CLRA, with the purposes of promoting fair competition and consumer protection, contain "broad, sweeping language" to describe their substantive provisions. Loeffler v. Target Corp., 58 Cal.4th 1081, 171 Cal.Rptr.3d 189, 324 P.3d 50, 75 (2014) (quoting Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 120 Cal.Rptr.3d 741, 246 P.3d 877, 883 (2011)). However, California's highest state court also recognizes that these statutes do not give the courts the authority to "simply impose their own notions" of fairness and the legislature may "limit the judiciary's power to declare conduct unfair." Id., 171 Cal.Rptr.3d 189, 324 P.3d at 76 (quoting Cal-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 83 Cal.Rptr.2d 548, 973 P.2d 527, 541 (1999)). For example, if the legislature "has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination." Id. (internal quotation marks omitted). "Moreover," the California Supreme Court has explained, "in some instances, an action may not lie under the UCL because another statutory scheme provides the exclusive means for resolving disputes." Id.

In National Council Against Health Fraud, Inc. v. King Bio Pharmaceuticals, Inc., ("King Bio"), the California Court of Appeal, Second District, after careful analysis of the statutory provisions addressing who may bring a legal action under the UCL, stated:

107 Cal.App.4th 1336, 1344, 133 Cal.Rptr.2d 207 (2003).

In the fourteen years since King Bio was decided, courts, including several federal district courts, have cited it to require that private citizens bringing suit under the UCL or the CLRA properly allege proof that plaintiffs sustained injury from relying on marketing statements that were actually false.2 These courts have precluded private citizens from bringing actions that allege that the challenged advertising language lacked proper scientific substantiation. The California State Legislature has not amended the statutory language on which the King Bio holding relied. The California Supreme Court has not addressed King Bio's holding directly. However, the California Supreme Court recognizes that the "overriding purpose" of Proposition 64, which amended the UCL and the CLRA in 2004, "was to impose limits on private enforcement actions[.]" In re Tobacco II Cases, 46 Cal.4th 298, 93 Cal.Rptr.3d 559, 207 P.3d 20, 39 (2009). Tobacco II concluded that the amending language "imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL's fraud prong." Id. Reliance, according to the California Supreme Court, "is proved by showing that defendant's misrepresentation is an `immediate cause' of the plaintiff's conduct by showing that in its absence the plaintiff `in all reasonable probability' would not have engaged in the injury-producing conduct." Id. (internal quotation marks omitted) (emphasis added). The California Supreme Court's references to "reliance" on a "misrepresentation" is consistent with King Bio's requirement that private plaintiffs, unlike prosecuting authorities, do not have the power to require defendants to substantiate their advertising claims, and that private plaintiffs, like prosecuting authorities, have the burden of proving that the marketing claims are false or misleading.

Under the circumstances, it is readily apparent that King Bio's holding is firmly established law in California. As this court has not been presented with any "convincing evidence" to decide differently, we are obligated to follow the holding in King Bio. Accord Lewis v. Telephone Employees Credit Union, 87 F.3d at 1546. The district court did not err in concluding that neither the UCL nor the CLRA provides Kwan with a private cause of action to enforce the substantiation provisions of Calfornia's unfair competition or consumer protection laws.

2. Whether the district court erred when it concluded that the Second Amended Complaint failed to specifically allege facts to support a finding that SanMedica's claims regarding SeroVital were actually false.

In order to "survive a rule 12(b)(6) motion to dismiss, a `plaintiff must allege enough facts to state a claim to relief that is plausible on its face.'" Turner v. City and County of San Francisco, 788 F.3d 1206, 1210 (9th Cir. 2015) (quoting Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008)). "In assessing whether a party has stated a claim upon which relief can be granted, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party[.]" Turner, 788 F.3d at 1210. "[C]onclusory allegations of law and unwarranted inferences", however, "are insufficient to avoid" dismissal. Id. (quoting Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009)). "[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Legal conclusions may provide a framework for a complaint, but "they must be supported by factual allegations." Id. The court will assume the veracity of wellpleaded factual allegations "and then determine whether they plausibly give rise to an entitlement to relief." Id. This plausibility standard requires more than "a sheer possibility that a defendant has acted unlawfully" but "is not akin to a probability standard." Turner, 788 F.3d at 1210 (9th Cir. 2015) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). "`A claim has facial plausibility when the plaintiff pleads content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Johnson, 793 F.3d at 1007 (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

Kwan asserts the second amended complaint sufficiently alleges false misrepresentation in at least two ways that do not implicate a mere lack of substantiation. First, she contends that she adequately pled falsity when she alleged that the "clinically tested" representation, at a minimum, falsely implied that the marketing claims of SeroVital's health benefits were clinically proven by credible scientific proof. Secondly, she contends that the claims that growth hormone levels are associated with certain health benefits described in paragraph 1 of the second amended complaint falsely imply that defendant's product claims were based on credible scientific proof. These allegations are conclusory and do nothing to support or prove the falsehood of the claims. Instead each of these is simply an allegation that defendant's marketing claims lack scientific substantiation. Since California law does not provide a private cause of action for claims that advertising lacks substantiation, the failure to allege specific facts pointing to actual falsehood constitutes a fatal flaw.

In an attempt to resuscitate her complaint, Kwan invites the court to incorporate Lanham Act provisions into California's unfair competition and consumer protection law by distinguishing between "establishment" and "non-establishment" claims. In support Kwan cites several cases decided under the Lanham Act or laws with similar provisions. In King Bio, however, the court made plain that the plaintiff carries the burden of proof in false advertising actions, stating "We are aware of no cases in which the burden of proof shifts to the defendant upon the filing of the complaint." 107 Cal.App.4th at 1346-47, 133 Cal.Rptr.2d 207. Courts have recognized that no authority exists under California law for using the Lanham Act distinction between "establishment" and "non-establishment" claims as a means of shifting the burden of proof in California consumer protection law actions. E.g., Aloudi v. Intramedic Research Group, LLC, No. 15-cv-00882, 2015 WL 4148381, at *4 (N.D. Cal. 2015) ("Plaintiff does not cite any case in which the "establishment claim" standard has been applied outside the context of Lanham Act claims, and all of Plaintiff's cited authority exclusively analyzed Lanham Act claims."). Like the plaintiff in Aloudi, Kwan has not cited any authority for applying the "establishment claim" standard outside of the Lanham Act context and, more specifically, has not cited any authority for applying Lanham Act analysis to private causes of action under the UCL or the CLRA.

The King Bio court stated:

107 Cal.App.4th at 1347-48, 133 Cal.Rptr.2d 207 (citations omitted).

Reading a requirement that Lanham Act distinctions apply would clearly violate recognized California law on the burden of proof placed on the plaintiff. The King Bio court emphasized:

Id. at 1348, 133 Cal.Rptr.2d 207.

The rationale behind the legislation regarding substantiation claims is to provide prosecuting authorities a means of protecting consumers while limiting "undue harassment of advertisers and is the least burdensome method of obtaining substantiation for advertising claims." Id. at 1345, 133 Cal.Rptr.2d 207; accord McCrary v. Elations LLC, Slip Copy, No. EDCV 13-0242, 2014 WL 12561600, at *13 (C.D.Cal. Dec. 8, 2014) (noting that plaintiff's cites to Federal Trade Commission Act and Lanham Act cases "are not precedent that is applicable to" a case brought under the CLRA or the UCL).

The district court did not err by declining to address Kwan's complaint as if this were a case brought under the Lanham Act. Nor did it err in recognizing that the second amended complaint failed to allege facts that would support a finding that defendant's marketing claims were actually false.

CONCLUSION

The district court applied established California law and correctly identified that the second amended complaint did not allege facts to support a finding that defendant's advertising claims were actually false. We AFFIRM the order granting the motion to dismiss under rule 12(b)(6) of the Federal Rules of Civil Procedure. As the court provided Kwan with ample opportunity to amend her complaint to plead satisfactorily a cause of action under California law and Kwan was unable to do so, we AFFIRM the district court's dismissal with prejudice.

AFFIRMED.