“[W]e do not maintain there needs to be an explicit 10 agreement, but there must be at least some manifestation of assent to the 11 principal’s right to control.”
How later courts described this case
- “[W]e do not maintain there needs to be an explicit 10 agreement, but there must be at least some manifestation of assent to the 11 principal’s right to control.”
Written by the judges who cited it.
The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 ARIIX, LLC, Case No.: 17CV320-LAB (DDL)
12 Plaintiff,
ORDER RE: REMAND
13 v.
14 NUTRISEARCH CORPORATION,
et al.,
15
Defendant.
16
17 Plaintiff Ariix, LLC (“Ariix”), a nutritional supplement company, brings this suit
18 under the Lanham Act based on a theory of false advertising. Ariix alleges that
19 Defendants NutriSearch Corporation (“NutriSearch”), the publisher of the
20 NutriSearch Comparative Guide to Nutritional Supplements (“Guide”), and Lyle
21 MacWilliam, the Guide’s author (together with NutriSearch, “Defendants”), were
22 directly funded by Ariix’s competitor, USANA Health Sciences, Inc. (“Usana”), so
23 that Usana could achieve the Guide’s number-one rating for nutritional
24 supplements. This Court originally dismissed Ariix’s false advertising claim, but in
25 a two-one decision, the Ninth Circuit reversed, finding that Ariix had “plausibly
26 alleged that the defendant’s publication was commercial speech, was sufficiently
27 disseminated, and contained actionable statements of fact.” (Dkt. 41 at 2). The
28 appellate panel remanded the case to this Court to decide the third element of a
1 Lanham Act claim—whether the defendant’s publication was for the purpose of
2 influencing consumers to buy the defendant’s goods or services. Having
3 considered the parties’ briefings on this issue, the Court finds as follows.
4 I. BACKGROUND
5 On February 16, 2017, Ariix commenced this suit against Defendants,1
6 bringing a false advertising or promotion claim under the Lanham Act, 15 U.S.C.
7 § 1125(g). (Dkt. 1). Following its initial dismissal of Ariix’s original Complaint, the
8 Court again dismissed Ariix’s First Amended Complaint (“FAC”), finding that Ariix
9 failed to plead facts showing that a consumer review publication like the Guide
10 meets the definition of “commercial advertising or promotion” under the Lanham
11 Act. (Dkt. 27). Specifically, the Court held that consumer product reviews fall
12 outside the scope of § 1125(a)(1)(B) because they are not commercial speech and
13 instead are statements of opinion. The Court also found that Ariix had failed to
14 plausibly allege that Defendants had made false statements about Usana’s or
15 Ariix’s products.
16 On Ariix’s appeal, the Ninth Circuit narrowly considered whether Ariix had
17 plausibly alleged that NutriSearch had engaged in “commercial speech” in its
18 publication of the Guide. (Dkt. 41); Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107,
19 1115 (9th Cir. 2021). In distinguishing commercial and non-commercial speech,
20 the Ninth Circuit looked to the three Bolger factors: whether (1) “the speech is an
21 advertisement,” (2) it “refers to a particular product,” and (3) “the speaker has
22 economic motivation.” Id. at 1115–16 (quoting Hunt v. City of Los Angeles, 638
23 F.3d 703, 715 (9th Cir. 2011)); see also Bolger v. Youngs Drug Prods. Corp., 463
24
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26 1 Ariix initially filed this suit against NutriSearch, MacWilliam, and Usana, but
27 on March 21, 2022, the Court dismissed Usana from this action for lack of personal
jurisdiction. (Dkt. 67). On April 1, 2022, Ariix notified the Court of its intent not to
28
1 U.S. 60, 66–67 (1983). The court’s analysis turned primarily on the third factor,
2 which “asks whether the speaker acted primarily out of economic motivation, not
3 simply whether the speaker had any economic motivation.” Id. at 1116 (emphasis
4 in original). The panel majority found that the Guide “is more like a sophisticated
5 marketing sham rather than a product review guide,” thereby rendering it “paid
6 promotion” free from the protections enjoyed under the First Amendment. Id. at
7 1118–19 (“Simply put, paid promotion is commercial speech.”). The panel majority
8 concluded that where, as here, it’s alleged that a publisher claiming to offer
9 independent product reviews has secretly rigged the ratings to favor one company
10 over another in exchange for financial compensation, such speech can be
11 considered commercial. The majority also ruled that Defendants were not shielded
12 by the First Amendment and that Ariix had “plausibly alleged that the defendant’s
13 publication was commercial speech, was sufficiently disseminated, and contained
14 actionable statements of fact.” (Id. at 2).
15 The panel majority left it to this Court to decide, on remand, whether
16 Defendants’ publication was made “for the purpose of influencing consumers to
17 buy defendant’s goods or services.” Coastal Abstract Serv., Inc. v. First Am. Title
18 Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999). The Court now looks to Ariix’s Second
19 Amended Complaint (“SAC”) and considers this issue in the first instance.2
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2 Ariix filed a Notice of Supplemental Authority of a related case filed by Ariix
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against Usana in the District of Utah for allegations mirroring those in the present
23 case. (See Dkt. 72); Ariix LLC v. Usana Health Scis., Inc., No. 2:22-cv-00313-JNP-
DAO (D. Utah). Specifically, Ariix brings to the Court’s attention that court’s
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Decision and Order Denying Defendant’s Motion to Dismiss, including Judge Jill
25 Parrish’s interpretation of the Ninth Circuit’s Mandate regarding whether Ariix had
plausibly alleged the existence of an agency relationship between Usana,
26
NutriSearch, and MacWilliam. Although the Court is not bound by the Utah court’s
27 reasoning, pursuant to Federal Rule of Evidence 201, the Court nevertheless takes
judicial notice on its own of the Utah court’s decision. United States ex rel.
28
1 II. ANALYSIS
2 To establish a false advertising claim under the Lanham Act, a plaintiff must
3 allege “a false or misleading representation of fact in commercial advertising or
4 promotion that misrepresents the nature, characteristics, qualities, or geographic
5 origin of his or her or another person’s goods, services, or commercial activities.”
6 Prager Univ. v. Google LLC, 951 F.3d 991, 999 (9th Cir. 2020) (internal citations
7 and quotation marks omitted). The Ninth Circuit defines “commercial advertising
8 or promotion” as “(1) commercial speech, (2) by a defendant who is in commercial
9 competition with plaintiff, (3) for the purpose of influencing consumers to buy
10 defendant’s goods or services, and (4) that is sufficiently disseminated to the
11 relevant purchasing public.” Ariix, 985 F.3d at 1115; see also Newcal Indus., Inc.
12 v. Ikon Office Sol., 513 F.3d 1038, 1054 (9th Cir. 2008).
13 This Court must decide whether there is evidence to support a plausible
14 claim as to the third element of a false advertising claim—that is, whether Ariix has
15 plausibly alleged that publication of the Guide was intended to influence
16 consumers to buy NutriSearch’s product. While the Ninth Circuit didn’t decide this
17 issue on appeal, the panel majority did note that the allegations in the complaint
18 suggest that the advertising was “intended to help Usana’s goods, not
19 NutriSearch’s product,” Ariix, 985 F.3d at 1120, and that in analyzing this element,
20 it may be helpful for this Court “to determine whether the defendants and Usana
21 had an agency relationship; for example, it might be the case that the defendants
22 were acting as agents of Usana and therefore had a vested interest in the goods
23 that Usana sold, which might be enough to satisfy this element,” id. at 1120 n.10.
24 Judge Collins likewise noted in his dissent that the third element may be satisfied
25
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27 1992) (holding that a court may take judicial notice of “proceedings in other courts,
both within and without the federal judicial system, if those proceedings have a
28
1 with allegations suggesting that “Defendants . . . acted on Usana’s behalf or at its
2 direction by secretly making, in exchange for compensation, specific changes
3 requested by Usana in its own or competitors’ product reviews in the Guide.” Id. at
4 1126. He concluded, however, that the complaint falls short of alleging a true
5 agency relationship between Defendants and Usana:
6
That Defendants wrote obsequious reviews in the hope
7 that Usana would be pleased and buy more Guides or give
8 MacWilliam speaking engagements does not make them
Usana’s agents in writing those reviews. Nor does it
9 establish that they acted on Usana’s behalf or subject to its
10 control in doing so.
11 Id. at 1127. Instead, he opined that “the complaint’s factual allegations establish,
12 at most, that Defendants produced biased reviews in the craven hope that Usana
13 would then act in ways that were economically favorable to Defendants.” Id. at
14 1126.
15 Ariix takes umbrage with the dissent’s conclusion, arguing that, “[w]hether
16 assessed as a hidden financial arrangement, an agency relationship, or a
17 conspiracy, MacWilliam and NutriSearch had a vested interest in the sale of
18 Usana’s goods sufficient to attribute Usana’s goods to them.” (Dkt. 45 at 6). The
19 Court agrees.
20 A. Ariix’s Allegations
21 Ariix alleges in its complaint that Defendants are closely associated with
22 Usana and that “Usana pays NutriSearch and MacWilliam hundreds of thousands
23 of dollars per year and provides substantial other benefits—such as book sales to
24 Usana representatives—which altogether account for more than 90% of
25 MacWilliam’s income.” (Dkt. 44, SAC at 1–2). In return, Ariix claims, “Usana
26 exercises ultimate control over MacWilliam and NutriSearch’s product,” namely by
27 having Defendants “manipulate their ratings criteria to ensure Usana remains the
28 top-rated supplement company in the guide and actively sandbag Usana’s
1 competitors’ ratings and certifications.” (Id. at 2). According to Ariix, all this is done
2 in an effort to “ratchet up sales for Usana products.” (Id. at 1–2).
3 More specifically, Ariix alleges that MacWilliam was a former Usana sales
4 representative and on Usana’s advisory board member until 2005, when
5 MacWilliam decided he should resign because he believed his affiliation with
6 Usana gave the appearance of bias. (Id. ¶ 23). He approached Usana executives,
7 explaining that he’d like to continue publishing the Guide in exchange for Usana’s
8 financial support: “I am going to create more of a third-party appearance, but I’d
9 like you to use me for speaking and support me.” (Id.). Usana allegedly agreed,
10 but only if MacWilliam promised to “give [Usana] the number-one rating.” (Id.). Ariix
11 alleges that MacWilliam accepted, “assuring Usana it would get the number-one
12 rating despite the guide’s claims of independence and objectivity.” (Id.). Ariix
13 further alleges that Defendants are “entirely dependent” on compensation from
14 Usana. (Id. ¶ 26). For instance, “Usana directly pays [Defendants] hundreds of
15 thousands of dollars per year in fixed stipends, speaking fees, promotion fees, and
16 travel fees”; Usana “heavily promotes the guide to its sales representatives and
17 encourages them to purchase it”; Defendants “almost always tie[] the publication
18 of a new edition of the guide to the date of Usana’s annual convention” so as to
19 “continue to direct associates to the latest edition” and ensure “robust sales” of the
20 Guide; and at Usana’s speaking events, “MacWilliam is the only purportedly
21 ‘independent’ speaker who is allowed to promote and sell his own products at such
22 events.” (Id. ¶¶ 26–27). Ariix contends that there is a direct correlation between
23 awarding Usana the top rating in the Guide and an increase in Defendants’ book
24 sales: “not only do[] [Defendants] rate Usana highest because of the incentive to
25 increase Usana’s sales and to keep Usana happy, but also because, driven by the
26 dictates of Usana, Usana’s distributors are their largest market segment [for sales
27 of the Guide].” (Id. ¶ 29).
28 As evidence of this alleged illicit agreement between Defendants and Usana,
1 Ariix claims that during times when Defendants “have failed to meet their
2 commitments to Usana”—i.e., awarding the top Gold Medal certification to another
3 company—“Usana punished [Defendants] for failing to deliver per their agreement
4 by cutting them off financially.” (Id. ¶ 31). Ariix points to one such instance in 2008,
5 when an Usana executive explained to MacWilliam that “we don’t want to stand up
6 and say ‘we’re one of the five best’”—Usana wants to be “number one.” (Id.).
7 MacWilliam allegedly asked in response whether it would “help if Usana is number
8 one in some way,” to which the Usana executive responded, “of course it would
9 help.” (Id.). NutriSearch allegedly “cured this breach of its secret agreement with
10 Usana by coming out with a new award called ‘Editor’s Choice’ and giving it to
11 Usana.” (Id. ¶ 32). NutriSearch allegedly did so “with the explicit understanding
12 that the new award—which allowed Usana to again be ‘the best’—would entitle
13 MacWilliam to return to the Usana event circuit to speak and sell more books, and
14 thus earn more speaking fees and book royalties.” (Id.).
15 In the same vein, the following year when “another company was actually
16 going to beat Usana,” MacWilliam explained the situation to Usana, to which an
17 Usana executive responded that “we pay [Defendants] to make us number one.”
18 (Id. ¶ 35). MacWilliam then advised Usana that it would either need to change
19 something in its formula or Defendants would need to change their matrix. (Id.).
20 MacWilliam “worked with Usana to adjust his allegedly objective matrix so that
21 Usana stayed on top.” (Id. ¶ 35). Ariix alleges that, each year thereafter, “Usana
22 required MacWilliam to adjust his matrix” to ensure Usana remained the top-rated
23 company in the Guide. (Id. ¶ 36 (emphasis in original)). Ariix argues that the Guide
24 is thus “not only a tool for Usana’s promotion, but also for the sabotage of its
25 competitors,” like Ariix. (Id. ¶ 42).
26 B. Financial Arrangement
27 Ariix specifically contends that “NutriSearch and MacWilliam can be liable for
28 their statements intended to influence consumers to buy Usana’s products”
1 because “they had an explicit agreement with Usana to act as its clandestine
2 agents, juicing its sales under a financial agreement hidden from consumers, to
3 whom they hold themselves out as independent, objective nutrition supplement
4 reviewers.” (Dkt. 45 at 8). On appeal, the panel confirmed this view, finding that
5 Ariix had “plausibly alleged that NutriSearch and MacWilliam published the Guide
6 mainly with the economic goal of furthering their own self-interests beyond simply
7 benefiting from sales of the publication.” Ariix, 985 F.3d at 1117. They held that
8 Ariix had sufficiently alleged that Defendants “published the Guide mainly to reap
9 the financial benefits of a hidden marketing arrangement with Usana rather than
10 to inform consumers about nutritional supplements.” Id.
11 Indeed, the SAC plausibly alleges the existence of a hidden financial
12 agreement between Defendants and Usana. According to allegations in the SAC,
13 MacWilliam was paid “hundreds of thousands of dollars” under the guise of
14 speaking fees in exchange for awarding Usana’s products the Guide’s number-
15 one rating. (SAC ¶¶ 26–27). The SAC states that, on occasions when Defendants
16 failed to name Usana as the Gold Medal recipient, Usana withdrew its financial
17 support from Defendants, who were then faced with declining book sales. (Id.
18 ¶ 31). In response, Defendants created a new award, called the “Editor’s Choice”
19 award, and gave it to Usana “with the explicit understanding that the new
20 award . . . would entitle MacWilliam to return to the Usana event circuit to speak
21 and sell more books, and thus earn more speaking fees and book royalties.” (Id.
22 ¶ 32). To be sure, such an alleged arrangement was never made apparent to
23 consumers—the Guide was explicitly touted as an independent publication, and
24 Defendants never disclosed that Usana’s number-one rating was the result of the
25 parties’ secret dealings or that the Guide was influenced by a third-party.
26 While it may be true that the parties’ “hidden financial agreement” helped
27 increase the sale of Usana’s products, the SAC does also allege that NutriSearch
28 and MacWilliam were financially incentivized to promote those products to
1 consumers. As the SAC explains, sales of the Guide to Usana’s distributors
2 account for the vast majority of the Guide’s sales, meaning that refusing to award
3 Usana the number-one rating and thereby failing to promote Usana’s products
4 removes Defendants’ access to its largest market segment and its main source of
5 income. (Id. ¶ 29). Awarding Usana the top rating afforded Defendants the
6 opportunity to not only sell more of the Guide due to increased distribution access,
7 but also earn “hundreds of thousands of dollars per year in fixed stipends, speaking
8 fees, promotion fees, and travel costs.” (Id. ¶ 26). The parties here had a clear
9 financial arrangement designed to influence consumers to buy products from a
10 third-party in which Defendants had a direct financial stake. See also Grasshopper
11 House, LLC v. Clean & Sober Media, LLC, No. 2:18-cv-00923-SVW-RAO,
12 2018 WL 6118440, at *7 (C.D. Cal. July 18, 2018) (citing Enigma Software Grp.
13 USA, LLC v. Bleeping Comput. LLC, 194 F. Supp. 3d 263, 294 (S.D.N.Y. 2016)
14 (holding that “by alleging that [Defendant] earns a commission on directed sales
15 of [products sold by Plaintiff’s competitor], the SAC adequately pleads that
16 [Defendant] had an economic incentive to engage in such promotion,” and that
17 such commercial speech was “made for the purpose of influencing consumers to
18 buy products in which [Defendant] has a financial stake”) (internal citations and
19 brackets omitted)).
20 C. Agency Relationship
21 In light of the financial arrangement between Defendants and Usana, the
22 Court is persuaded that an agency relationship existed between them, and that
23 Defendants’ alleged misrepresentations were made within the scope of this
24 principal-agent relationship.
25 1. Defendants Acted as Usana’s Agent
26 “Agency is the fiduciary relationship that arises when one person (a
27 ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act
28 on the principal’s behalf and subject to the principal’s control, and the agent
1 manifests assent or otherwise consents so to act.” Mavrix Photographs, LLC v.
2 LiveJournal, Inc., 873 F.3d 1045, 1054 (9th Cir. 2017) (as amended) (quoting
3 Restatement (Third) of Agency (“Restatement”) § 1.01 (Am. Law Inst. 2006)). “For
4 an agency relationship to exist, an agent must have authority to act on behalf of
5 the principal and ‘[t]he person represented [must have] a right to control the actions
6 of the agent.’” Id. (quoting Restatement § 1.01 cmt. c). Actual control is not
7 necessary; as long as there is an agreement that the principal has the right to
8 control the agent, an agency relationship exists. United States v. Bonds, 608 F.3d
9 495, 506–07 (9th Cir. 2010) (“[W]e do not maintain there needs to be an explicit
10 agreement, but there must be at least some manifestation of assent to the
11 principal’s right to control.”).
12 First, the Court is persuaded that Ariix has plausibly alleged facts that
13 support the inference that Usana manifested assent to Defendants acting on its
14 behalf. The SAC discusses an agreement made between Defendants and Usana
15 that Defendants would be awarded the number-one rating in the Guide “in
16 exchange [for] financial support from Usana,” including speaking fees and access
17 to Usana’s distributors in order to sell more copies of the Guide. (SAC ¶ 23). The
18 SAC states:
19
This agreement firmly established that, though cloaked in
20 secrecy so that the guide would continue to appear
independent, MacWilliam and NurtriSearch’s agreement
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with Usana was one in which Usana exercised control over
22 their editorial discussions, and MacWilliam and
NutriSearch’s renumeration was tied to and dependent on
23
selling more Usana products, principally by elevating
24 Usana above all its competitors in the guide (and keeping
it that way).
25
26 (Id ¶ 24). Specifically, the SAC discusses an exchange between Defendants and
27 Usana dating back to 2005 where MacWilliam approached Usana and asked it to
28 “use [him] for speaking and support [him],” and Usana agreed on the condition that
1 MacWilliam “give [Usana] the number-one rating.” (Id. ¶ 23). In a later year,
2 perhaps around 2008, when Ariix realized another company would beat Usana
3 according to Ariix’s rating criteria at the time, MacWilliam approached Usana about
4 the situation and proposed changing the ratings “matrix” to ensure that Usana
5 would remain number one. (Id. ¶ 35). Usana “agreed, and MacWilliam worked with
6 Usana to adjust his allegedly objective matrix so that Usana stayed on top.” (Id.).
7 Defendants argue in response that Ariix’s allegations are merely conclusory and
8 that more detail is needed regarding the alleged agreement. (Dkt. 50 at 11). But
9 the precise details of the agreement are not required at this stage in the litigation,
10 and the Court finds that the SAC sufficiently establishes the existence of an
11 agreement created through Usana’s assent.
12 Next, the Court finds that the SAC plausibly alleges that Defendants
13 consented to act on Usana’s behalf and agreed to be subject to its control. As
14 previously discussed, Ariix alleges that MacWilliam was the one to approach
15 Usana and propose that he favor Usana in his ratings in exchange for speaking
16 opportunities and financial support. (SAC ¶ 23). The complaint details the lengths
17 Defendants would go to ensure they retained this financial support, including
18 “arbitrarily revising their so-called objective scientific criteria or by tweaking the
19 advisable amounts of particular ingredients of a supplement formula in order to
20 weight the criteria in Usana’s favor.” (Id. ¶ 36) (“Usana required MacWilliam to
21 adjust his matrix in coordination with Usana so that Usana’s new formulation would
22 come out on top . . . And every year, [MacWilliam] did so.”) (emphasis in original).
23 Ariix also alleges that on occasions when Defendants failed to meet their
24 commitments to Usana, Usana would punish Defendants by cutting them off
25 financially, and that Defendants capitulated by creating the “Editor’s Choice” award
26 and giving it to Usana in exchange for being allowed to return to “the Usana event
27 circuit to speak and sell more books, and thus earn more speaking fees and book
28 royalties.” (Id. ¶ 31). The relationship described in the complaint plainly suggests
1 one in which Defendants voluntarily yielded to Usana’s desires and complied with
2 its directives in order to secure Usana’s financial backing.
3 The existence of an agency relationship also depends on the level of control
4 a principal exerts over the agent. See Bonds, 608 F.3d at 505 (quoting NLRB v.
5 Friendly Cab Co., 512 F.3d 1090, 1096 (9th Cir. 2008)). The Court need not find
6 that the principal “actually control[s] [the] agent as a prerequisite for establishing
7 a[n] [agency] relationship, rather the principal need only have ‘a right to control the
8 actions of the agent.’” McAdory v. M.N.S. & Assocs., LLC, No. 3:17-CV-00777-HZ,
9 2021 WL 2321634, at *7 (D. Or. June 7, 2021) (emphasis added) (citing
10 Restatement § 1.01 cmt. c). The Court is persuaded here that the SAC supports
11 an inference that Usana exerted control over Defendants. The complaint suggests
12 that “Usana exercised control over [Defendants’] editorial decisions,” (SAC ¶ 24),
13 and that Usana was clear in its directive that it be awarded the number-one award
14 or else it would withdraw its financial support. Defendants now attempt to parse
15 the complaint’s allegations and frame Usana’s actions as the exercise of mere
16 “influence” rather than as “control.” (Dkt. 50 at 12 (“To be sure, Ariix’s allegations
17 plausibly suggest that Usana might have sometimes attempted to influence
18 MacWilliam’s behavior and exerted that influence by declining to promote
19 MacWilliam and the Guide when its reviews were less than superlative. . . . [But]
20 under bedrock principles of agency law, that’s just not enough.”). Semantics aside,
21 though, the nature of the allegations remains this: Usana exercised its right to
22 control Defendants by conditioning its financial support on the guarantee that it
23 would remain the top-rated supplement company in the Guide. That Usana went
24 so far as to require that Defendants change their entire ratings matrix to ensure
25 Usana received the number-one award is highly suggestive of Usana’s right to
26 control not only Defendants’ end product, but also the manner and methodology
27 of Defendants’ performance. See Mavrix Photographs, 873 F.3d at 1055.
28 The SAC plausibly alleges that Usana manifested assent, Defendants
1 consented to act as Usana’s agent, and Usana exercised control over Defendants.
2 Ariix has thus pled facts to support the inference that Defendants had an agency
3 relationship with Usana.
4 2. Scope of Defendants’ Authority
5 Relying on the Restatement, the Ninth Circuit recognizes four avenues
6 through which an agency relationship may be established: “actual authority,
7 apparent authority, ratification, and employment (respondeat superior).” Jones v.
8 Royal Admin. Servs., Inc., 887 F.3d 443, 449 (9th Cir. 2018). Here, Ariix argues
9 that agency was created through actual authority given to Defendants to act on
10 Usana’s behalf, Usana’s exercise of substantial control over Defendants, and
11 Usana’s ratification of Defendants’ actions. (Dkt. 45 at 9–15).
12 An agent has actual authority to take a certain action when “the agent
13 reasonably believes, in accordance with the principal’s manifestations to the agent,
14 that the principal wishes the agent so to act.” Restatement § 2.01. Actual authority
15 is limited to actions “specifically mentioned to be done in a written or oral
16 communication” or “consistent with” a principal’s “general statement of what the
17 agent is supposed to do.” Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 940
18 (9th Cir. 2017) (quoting N.L.R.B. v. Dist. Council of Iron Workers of the State of
19 Cal. & Vicinity, 124 F.3d 1094, 1098 (9th Cir. 1997)). Ratification, on the other
20 hand, occurs when the principal accepts the benefit of the agent’s act either with
21 actual knowledge of the material facts or with “knowledge of facts that would have
22 led a reasonable person to investigate further”—also known as “willful ignorance.”
23 Henderson v. United Student Aid Funds, Inc., 918 F.3d 1068, 1073–75
24 (9th Cir. 2019).
25 Ariix’s allegations regarding the nature of the relationship between
26 Defendants and Usana are consistent with the elements of an agency relationship
27 created through actual authority. Usana communicated a clear directive that
28 Defendants do what it takes to ensure Usana received the top award in the Guide.
1 Usana threatened to withdraw financial support and deny Defendants access to
2 Usana’s distribution market if they didn’t comply with this directive. As alleged in
3 the SAC, Usana was direct in its instructions to Defendants, and was aware of
4 Defendants’ efforts to falsely market the Guide as an objective and independent
5 publication. MacWilliam even worked hand-in-hand with Usana to reformulate the
6 so-called objective rating criteria to ensure Defendants could follow through on
7 their agreement to keep Usana as the top-rated company. And while the precise
8 details of their agreement remain unknown, including whether Usana’s instructions
9 were written or communicated verbally to Defendants, such facts are appropriate
10 for discovery at a later stage in this litigation. At this pleading stage, the Court is
11 persuaded that Defendants acted with actual authority and pursuant to an actual
12 agreement with Usana to falsely advertise the Guide as an objective, independent
13 publication on which consumers believed they could safely rely.
14 III. Conspiracy
15 Finally, Ariix suggests that Usana’s goods may be attributable to Defendants
16 because “they consciously committed to an unlawful scheme that goes directly to
17 the heart” of the third Lanham Act element. (Dkt. at 17). Ariix argues that a “sham
18 marketing scheme,” such as the one alleged in this case, amounts to a civil
19 conspiracy, which occurs “when the parties have reached ‘a unity of purpose or a
20 common design and understanding, or a meeting of the minds in an unlawful
21 arrangement.’” (Id. (quoting Transgo, Inc. v. Ajac Transmission Parts Corp.,
22 768 F.2d 1001, 1020 (9th Cir. 1985)). Ariix maintains that “Usana’s goods can be
23 imputed to NutriSearch and MacWilliam as co-conspirators” and knowing
24 participants in the scheme. (Id. at 18).
25 However, having already established that Defendants were acting as
26 Usana’s agents pursuant to actual authority from Usana, the Court concludes that
27 the SAC plausibly alleges that Defendants acted with the purpose of influencing
28 consumers to buy their goods or services. The Court therefore need not reach the
1 ||issue of whether Ariix has pled enough facts to suggest the existence of a
2 ||conspiracy.
3 IV. CONCLUSION
4 The allegations in the complaint satisfy the third element of a Lanham Act
5 || claim. A scheduling order will follow.
6 IT IS SO ORDERED.
7
8 ||Dated: April 13, 2023 lau A (Buywy
9 Hon. Larry Alan Burns
40 United States District Judge
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