referring to § 17204 as standing provision
How later courts described this case
- referring to § 17204 as standing provision
Written by the judges who cited it.
The opinion
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8 UNITED STATES DISTRICT COURT
9 CENTRAL DISTRICT OF CALIFORNIA
10
11 TORTILLA FACTORY, LLC, ) Case No. CV 17-7539 FMO (GJSx)
)
12 Plaintiff, )
)
13 v. ) FINDINGS OF FACT AND CONCLUSIONS
) OF LAW
14 GT’S LIVING FOODS, LLC, )
)
15 Defendant. )
)
16
17 INTRODUCTION
18 On October 14, 2017, Tortilla Factory (“plaintiff” or “Tortilla Factory”), a California-based
19 limited liability company, filed this action against GT’s Living Foods, LLC (“defendant” or “GT’s”).
20 (See Dkt. 1, Complaint For Damages and Equitable Relief). On February 26, 2018, Tortilla
21 Factory filed the operative Second Amended Complaint for Damages and Equitable Relief
22 (“SAC”), asserting claims for: (1) false advertising and unfair competition under § 43(a) of the
23 Lanham Act, (“Lanham Act”), 15 U.S.C. § 1125(a); (2) unfair competition under Cal. Bus. & Prof.
24 Code § 17200 (“UCL”); (3) intentional interference with prospective economic relations; and (4)
25 negligent interference with prospective economic relations. (See Dkt. 34, SAC at ¶¶ 61-99).
26 Tortilla Factory seeks compensatory and punitive damages, equitable relief, and attorney’s fees
27 and costs. (See id. at 20-21).
A liability-only bench trial was held on June 7 and 8, 2022, on Tortilla Factory’s Lanham Act
1 and UCL claims. (See Dkt. 348, Pretrial Conference Order (“PTCO”) at ¶¶ 3-4 & 7-8). Tortilla
2 Factory abandoned its claim for damages under the Lanham Act, (see Dkt. 333, Court’s Order of
3 June 3, 2022), and is pursuing its UCL claim under the unlawful and false advertising prongs.
4 (See Dkt. 348, PTCO at ¶¶ 3-4 & 7-8).
5 Having reviewed and considered all the evidence presented during the bench trial, and the
6 contentions and arguments of counsel, the court hereby makes the following findings of fact and
7 conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.1
8 Because the court finds that Tortilla Factory failed to meet its burden of proving that it suffered
9 competitive harm proximately caused by GT’s labeling and representations regarding its Classic
10 and Enlightened products, the court will address only those facts and arguments regarding this
11 element.
12 FINDINGS OF FACT
13 I. BACKGROUND.
14 1. Kombucha is a fermented beverage made using a combination of tea and sugar sources
15 that, when fermented over time with a symbiotic culture of bacteria and yeast, creates acetic acids
16 and natural effervescence. (See Dkt. 363, Reporter’s Transcript of Bench Trial Proceedings, Day
17 One (“RT I”) at 31-33).
18 2. As a fermented beverage, all kombucha contains naturally occurring alcohol. (Dkt. 348,
19 PTCO at ¶ 12).
20 3. Tortilla Factory is a limited liability company with an office in Los Angeles, California.
21 (Dkt. 348, PTCO at ¶ 1).
22 4. Michael Faye, the principal of Tortilla Factory, began manufacturing and selling
23 kombucha beverages in 2013, at his location in downtown Los Angeles, which previously housed
24 a tortilla-making factory. (Dkt. 348, PTCO at ¶ 2).
25
26
27
1 Any finding of fact that more correctly constitutes a conclusion of law, and any conclusion
1 5. “Kombucha Dog” is the brand name of Tortilla Factory’s kombucha products. (Dkt. 348,
2 PTCO at ¶ 3).
3 6. Mr. Faye has been a professional photographer for over 30 years, and the labels on the
4 Kombucha Dog products display Mr. Faye’s photographs of rescue dogs available for adoption.
5 (Dkt. 348, PTCO at ¶ 4).
6 7. Kombucha Dog has approximately 1.25% alcohol by volume (“ABV”). (Dkt. 363, RT I
7 at 36). It is sold as an alcoholic beverage, with a government-required label that includes the
8 following language:
9 GOVERNMENT WARNING: (1) According to the Surgeon General, women
10 should not drink alcoholic beverages during pregnancy because of the risk
11 of birth defects. (2) Consumption of alcoholic beverages impairs your ability
12 to drive a car or operate machinery, and may cause health problems.
13 (Dkt. 348, PTCO at ¶ 5).
14 8. On October 31, 2016, Tortilla Factory entered into an exclusive distribution deal with
15 Young’s Market Company (“Young’s Market” or “Young’s”) to distribute Kombucha Dog. (See Dkt.
16 363, RT I at 102-04).
17 9. By 2017, Tortilla Factory’s agreement with Young’s Market was a “disaster[.]” (See Dkt.
18 363, RT I at 106); (Exhibit (“Exh.”) 1089); (Exh. 88). There were “scores of Kombucha Dog
19 accounts that Young’s allowed to go cold,” meaning that “Young’s did not provide th[ose] accounts
20 with service[,]” (Dkt. 363, RT I at 114), and those “accounts died[.]” (Id. at 115); (Exh. 33)
21 (“Young’s Cold Accounts”).
22 10. GT’s is a Delaware Limited Liability Company registered with the California Secretary
23 of State, with its principal place of business in Vernon, California. (Dkt. 348, PTCO at ¶ 6).
24 11. George Dave is GT’s owner and founder. (Dkt. 363, RT I at 224).
25 12. GT’s began selling kombucha products in 1995, (Dkt. 348, PTCO at ¶ 7), and was the
26 first commercial kombucha company in the United States. (See Dkt. 367, Reporter’s Transcript
27 of Bench Trial Proceedings, Day Two (“RT II”) at 28).
1 13. GT's manufactures three separate lines of kombucha products: (1) Enlightened (now
2 called “Synergy”)2 kombucha; (2) Classic kombucha; and (3) Hard kombucha. (Dkt. 348, PTCO
3 at ¶ 8). Only GT’s Enlightened/Synergy and Classic kombucha are relevant to this case.
4 14. GT’s introduced the Classic line in 2011. (Dkt. 367, RT II at 40). It was the first
5 alcoholic-labeled kombucha on the market. (Id. at 41).
6 15. GT's Classic kombucha is an alcoholic beverage that contains over 0.5% ABV. (Dkt.
7 348, PTCO ¶ 9). The labels on GT's Classic bottles display the following government-required
8 warning:
9 GOVERNMENT WARNING: (1) According to the Surgeon General, women
10 should not drink alcoholic beverages during pregnancy because of the risk
11 of birth defects. (2) Consumption of alcoholic beverages impairs your ability
12 to drive a car or operate machinery, and may cause health problems.
13 (Dkt. 348, PTCO ¶ 10).
14 II. THE KOMBUCHA MARKET.
15 16. There are approximately 300 plus kombucha brands in the United States. (Dkt. 367,
16 RT II at 40).
17 17. In 2013, there was an influx of kombucha brands, which included companies that were
18 backed by Coke and Pepsi. (See Dkt. 367, RT II at 38-39).
19 18. California is “the most competitive of all the states” because “there’s a lot of local
20 brands in California.” (Dkt. 363, RT I at 243).
21 19. GT’s is the leading kombucha seller in the United States, with a market share of about
22 50 percent as of 2018. (See Dkt. 363, RT I at 242-244).
23 20. Kombucha Dog’s market is limited to Southern California, primarily Los Angeles. (See
24 Dkt. 363, RT I at 78-79).
25 / / /
26
27
1 III. SPECIFIC CUSTOMER ACCOUNTS.
2 A. Lightning in the Bottle.
3 21. Lightning in a Bottle is an annual music festival held in the Central Valley region of
4 California. (Dkt. 348, PTCO ¶ 13).
5 22. Tortilla Factory sold Kombucha Dog at the Lightning in a Bottle festival in 2014 and
6 2015. (Dkt. 348, PTCO ¶ 14). It did not sell kombucha at Lightning in a Bottle after 2015. (Id. at
7 PTCO ¶ 17).
8 23. GT’s began selling kombucha at Lightning in the Bottle in 2014. (Dkt. 367, RT II at 73).
9 GT’s sold kombucha out of kegs instead of bottles. (See id. at 74, 76-77); (id. at 92) (Mr. Dave
10 agreeing during cross examination that GT’s sold Enlightened “through the keg”). The kegs were
11 transported directly from GT’s facility using a sprinter van that allowed them to keep the kegs
12 refrigerated. (See id. at 74-75).
13 24. GT’s developed a specific flavor – Golden Sage – for the 2016 festival. That flavor has
14 never been sold commercially in retail. (Dkt. 367, RT II at 75).
15 25. For the 2017 festival, GT’s developed another flavor, Liberty, which is available as a
16 summer seasonal flavor. (Dkt. 367, RT II at 76).
17 26. The Lightning in a Bottle festival did not occur in 2020 or 2021. (Dkt. 348, PTCO ¶ 18).
18 B. Tender Greens.
19 27. Tender Greens is a “fast causal” restaurant chain. (Dkt. 367, RT II at 71-72).
20 28. Tortilla Factory sold Kombucha Dog in five Tender Greens locations in 2013 and 2014.
21 (Dkt. 363, RT I at 67).
22 29. Tender Greens asked Tortilla Factory if it “could match marketing dollars,” which Mr.
23 Faye “underst[ood]” to be prohibited under “federal alcoholic” laws. (See Dkt. 363, RT I at 67-68).
24 30. Tender Greens requested that GT’s pay for menu boards, which GT’s agreed to do.
25 (See Dkt. 363, RT I at 248-49); (Dkt. 367, RT II at 72-73); (Exh. 23). Because “there’s a cost
26 involved . . . to change the name on the menu board which is on the wall at . . . Tender Greens[,]”
27 Tender Greens charged GT’s “the cost to effectively put [GT’s] name on the menu board.” (Dkt.
367, RT II at 72-73). GT’s started supplying Tender Greens with Enlightened kombucha in 2014
1 or 2015. (See Dkt. 363, RT I at 248-49); (Dkt. 367, RT II at 71).
2 31. The kombucha GT’s provided to Tender Greens was contained in kegs. (Dkt. 367, RT
3 II at 72) (“Q: And you supplied them with kegs? A: Yes.”); (id. at 92) (“Q: And at Tender
4 Greens, in fact, Enlightened was sold through the keg, correct? A: That’s correct.”).
5 C. Café Gratitude.
6 32. Tortilla Factory sold Kombucha Dog at Café Gratitude from early 2014 to 2016. (Dkt.
7 363, RT I at 68).
8 33. Tortilla Factory is no longer sold at Café Gratitude because Café Gratitude did not have
9 an “off-premises alcohol license,” which it needed to sell Kombucha Dog “to-go.” (Dkt. 363, RT
10 I at 68); (id. at 142) (Mr. Faye testified that “Café Gratitude was buying Kombucha from us, and
11 then they were putting it into a kiosk – a to-go kiosk.”); (id. at 143) (Mr. Faye testifying that
12 Kombucha Dog should not have been placed in the to-go kiosks “because [Café Gratitude] didn’t
13 have the correct license to sell alcohol to go.”).
14 34. After Kombucha Dog was no longer available at Café Gratitude, GT’s Enlightened was
15 sold in Café Gratitude’s to-go kiosk. (Dkt. 363, RT I at 68).
16 35. GT’s has sold kombucha – both Classic and Enlightened – at Café Gratitude on and
17 off. (Dkt. 367, RT II at 78); (id. at 78-79) (Mr. Dave testimony that Café Gratitude tends to rotate
18 is suppliers).
19 D. Jimbo’s.
20 36. GT’s sold its kombucha at Jimbo’s market since approximately 1999. (See Dkt. 367,
21 RT II at 82) (Mr. Dave testifying that was one of GT’s “early, early stores, even before Whole
22 Foods”); (id. at 32) (Mr. Dave testifying that in 1999, GT’s got into Whole Foods); (see also Dkt.
23 363, RT I at 126) (Mr. Faye admitted that GT’s was already in Jimbo’s) (“Q: And GT’s was already
24 in Jimbo’s, correct? A: Yes.”).
25 37. Tortilla Factory sold Kombucha Dog at Jimbo’s market from 2014 through 2017. (Dkt.
26 363, RT I at 69).
27 / / /
1 CONCLUSIONS OF LAW
2 I. LIABILITY UNDER THE LANHAM ACT.
3 38. “The Lanham Act creates a cause of action for unfair competition through misleading
4 advertising or labeling. Though in the end consumers also benefit from the Act's proper
5 enforcement, the cause of action is for competitors, not consumers.” POM Wonderful LLC v.
6 Coca-Cola Co., 573 U.S. 102, 107, 134 S.Ct. 2228, 2234 (2014); see id at 106, 134 S.Ct. at 2233
7 (“[Section] 43 of the Lanham Act . . . allows one competitor to sue another if it alleges unfair
8 competition arising from false or misleading product descriptions.”) (citation omitted).
9 39. “The elements of a Lanham Act § 43(a) false advertising claim are: (1) a false
10 statement of fact by the defendant in a commercial advertisement about its own or another's
11 product; (2) the statement actually deceived or has the tendency to deceive a substantial segment
12 of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision;
13 (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has
14 been or is likely to be injured as a result of the false statement, either by direct diversion of sales
15 from itself to defendant or by a lessening of the goodwill associated with its products.” Southland
16 Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997) (footnotes omitted).
17 40. “To invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead
18 (and ultimately prove) an injury to a commercial interest in sales or business reputation
19 proximately caused by the defendant's misrepresentations.” Lexmark Int'l, Inc. v. Static Control
20 Components, Inc., 572 U.S. 118, 140, 134 S.Ct. 1377, 1395 (2014). Here, the court finds that
21 Tortilla Factory has failed to establish the last element of its Lanham Act claim – that it has been
22 or is likely to be injured as a result of GT’s labeling.
23 A. “Corrective” Advertising.
24 41. Tortilla Factory contends that it suffered competitive harm because it expended
25 significant amounts on corrective advertising. (See Dkt. 369, Plaintiff Tortilla Factory, LLC’s
26 Memorandum of Points and Authorities Re: Bench Trial – Liability (“TF Memo.”) at 19-20). Mr.
27 Faye testified that Tortilla Factory has spent money since 2013 on sales material to educate
consumers “about undiluted and authentic Kombucha,” and about sugar. (See Dkt. 363, RT I at
1 51-54); (id. at 52) (testifying that Tortilla Factory spent money on advertising and educating sales
2 force regarding sugar content); (Exh. 232) (“promotional piece”); (Exhs. 96-100) (Tortilla Factory
3 management reports from 2013 to 2017). However, the court did not find credible Mr. Faye’s
4 testimony that Tortilla Factory engaged in “corrective advertising” as opposed to typical advertising
5 undertaken by any small business entering a competitive market.3
6 42. The management reports relied on by Tortilla Factory do not compel a different
7 conclusion, as they simply include a line item for sales and marketing. (See Exh. 96, 2013
8 Management Report at TF002308); (Exh. 97, 2014 Management Report at TF002319); (Exh. 98,
9 2015 Management Report at TF002337); (Exh. 99, 2016 Management Report at TF 2355); (Exh.
10 100, 2017 Management Report at TF002372). In other words, the court cannot assume, based
11 on the management reports, that the purpose of plaintiff’s advertising was to combat GT’s alleged
12 false advertising.
13 B. Alcohol Representations and Labeling.4
14 43. With respect to Tortilla Factory’s contentions regarding representations about the
15 amount of alcohol in, and the lack of a government alcohol warning label on, GT’s Enlightened
16 products, the court agrees with GT’s that a customer who purportedly purchased GT’s Enlightened
17 kombucha because it lacked an alcohol warning label would not, as an alternative, purchased
18 Kombucha Dog, an alcoholic product.5 A customer who wished to purchase nonalcoholic
19 kombucha would have instead purchased one of dozens of available nonalcoholic kombucha
20
3 Also, as GT’s notes, (see Dkt. 372, GT’s Living Foods, LLC’s Memorandum of Points and
21
Authorities Re: Bench Trial – Liability (“GT’s Memo.”) at 16 n. 7), the SAC does not mention
22 alleged costs associated with corrective advertising. (See, generally, Dkt. 34, SAC at ¶ 73 &
Prayer for Relief). Moreover, according to GT’s, Tortilla Factory did not identify corrective-
23 advertising costs in its initial disclosures. (See Dkt. 372, GT’s Memo. at 16 n. 7).
24 4 Tortilla Factory’s claims regarding GT’s representations as to the alcohol content of its
kombucha drinks apply only to GT’s Enlightened products. As noted above, GT’s Classic products
25
are labeled as alcoholic and bear the government alcohol warning label.
26
5 However, plaintiff’s evidence, including the testimony of its testing expert, Blake
27 Ebersole, regarding the alcohol and sugar levels in GT’s Enlightened products is credible and
compelling. (See, e.g., RT I at 154-222); (Dkt. 367, RT II at 228-245) (testimony of Mr. Ebersole).
1 drinks in the market, including Health-Ade and KeVita. (See Dkt. 372, GT’s Memo. at 11) (Dkt.
2 363, RT I at 75-76) (“Q: There are many Kombucha brands in L.A. that are not marketed as
3 alcoholic beverages, correct? A: Yes. Q: More than just GT’s, correct? A: Yes.”); (see also Dkt.
4 367, RT II at 39) (Mr. Dave testified that in 2013, there was an influx of kombucha brands, some
5 of which had “very, very deep pockets, because they were backed by Coke and Pepsi and PE
6 firms[.]”).
7 44. Dr. James Roberts, Tortilla Factory’s consumer survey expert, (see Dkt. 348, PTCO
8 at ¶¶ 21-22), opined that “alcohol warning labels . . . not only [on] Kombucha products but all
9 products lead to higher or more negative attitudes toward that product” and, “when you compare
10 a product with an alcohol warning label, such as Kombucha Dog up against GT’s Enlightened, you
11 can expect sales [sic] or less choices.”6 (Dkt. 367, RT II at 126); (id. at 103-04) (Dr. Roberts
12 testified that he was asked to “determine that impact that an alcohol warning label may have on
13 the decision to purchase Kombucha product” and that he utilized a “multi-mixed method approach
14 to data collection where [he] did not only consume [sic] a survey but also two quasi-experiments”).
15 45. GT’s expert, John Hansen, who rebutted Dr. Robert’s conclusions, opined that there
16 was no “basis [for Dr. Roberts] to determine or conclude that in the real world Tortilla Factory lost
17 sales due to the lack of [a] Government warning label on GT’s Enlightened product.” (Dkt. 367,
18 RT II at 198). Mr. Hansen noted that Dr. Robert’s conclusions “fail[ed] to consider numerous
19 factors that one would have to analyze to determine whether or not an actual lost sale occurred[,]”
20 including “lots of alternatives that would be competing for those sales[.]” (Id.). He explained that
21
22
6 Dr. Roberts also opined that when you compare Kombucha Dog against GT’s Classic,
23 it “evens the playing field,” resulting in a sales increase of Kombucha Dog. (Dkt. 367, RT II at
127). But this conclusion is a little suspect given the manner in which Dr. Roberts compared
24 Kombucha Dog with GT’s Classic. Dr. Roberts showed the survey group the front of a Kombucha
Dog bottle (with images of the puppies), while he only showed the back and side of GT’s Classic
25 bottle. (See Dkt. 367, RT II at 121-22); (Exh. 161). When asked why he did that, Dr. Roberts
stated that there would be too much familiarity with GT’s bottle. (Dkt. 367, RT II at 122).
26
However, Dr. Roberts also stated that he showed the front of a Kombucha Dog bottle because he
27 “wanted to give people kind of a feel – a better feel for the product.” (Id.). He conceded on cross-
examination that showing survey respondents “the photo of a cute dog could inject bias into the
1 “if the lack of a Government warning label was a purchase driver[,] . . . there would have been
2 numerous alternatives that were also nonalcoholic and didn’t have the Government warning label
3 that would have been available for that customer to purchase [.]” (Id. at 199-200).
4 46. In other words, if a consumer would be deterred from purchasing Enlightened because,
5 as plaintiff claims, it carried the alcohol warning label, the consumer would also be deterred from
6 purchasing Kombucha Dog. Indeed, Tortilla Factory makes this point when it argues that GT’s
7 contention that its larger number of flavors, greater retail availability, and “other similar factors”
8 contributed to Tortilla Factory’s poor financial performance “puts the cart before the horse.” (Dkt.
9 369, TF Memo. at 22). According to Tortilla Factory, consumer decisions regarding flavor and
10 similar factors “are made after the consumer has already decided whether to purchase alcoholic
11 or non-alcoholic kombucha.” (Id.) (emphasis in original).
12 47. In short, the court finds that Tortilla Factory has failed to show competitive harm
13 proximately caused by GT’s representations regarding the alcohol content of its Enlightened
14 products and the lack of a government alcohol warning label.7
15
16 7 Because Tortilla Factory’s position is that the alcohol warning label (or even the amount
of alcohol) is the driving factor in a kombucha consumer’s purchasing decision, (see Dkt. 369, TF
17 Memo. at 22), and given the court’s finding with respect to the lack of harm suffered as a result
of the lack of a warning label, the court’s finding also dooms Tortilla Factory’s contentions
18
regarding sugar in Enlightened products. In other words, even if Enlightened disclosed a higher
19 sugar content, consumers would not have purchased Kombucha Dog, but instead, would have
purchased an alternative non-alcoholic kombucha beverage. (See Dkt. 363, RT I at 75-76); (see
20 also Dkt. 367, RT II at 39). Moreover, Tortilla Factory did not produce any expert testimony or
survey results regarding the impact of sugar labels on consumer choices with respect to
21 kombucha. (See Dkt. 367, RT II at 135). And while Mr. Faye testified that in 2014, after Tortilla
Factory began placing nutrition labels on Kombucha Dog that disclosed six grams of sugar, (Dkt.
22
363, RT I at 49), “they had many discussions with consumers who thought that [Tortilla Factory’s]
23 product had three times the amount of sugar than GT’s did[,]” (id.), the court did not find Mr.
Faye’s testimony credible. Further, Tortilla Factory did not identify any consumer, retailer, or
24 distributor that refrained from purchasing or distributing Kombucha Dog based on a higher level
of sugar content. (See, generally, Dkt. 369, TF Memo. at 19-23).
25
With respect to GT’s Classic kombucha, Tortilla Factory did not introduce any sugar test
26
results related to these products. Instead, Tortilla Factory relied on Mr. Ebersole’s 2016 and 2019
27 tests, which were limited to the Enlightened products. (See Dkt. 363, RT I at 183); (Exh. 311,
Summary of Sugar Test Results for 2016 & 2019); (Dkt. 370-1, Plaintiff Tortilla Factory, LLC’s
1 C. Specific Customer Accounts.
2 48. In an effort to show competitive harm, Tortilla Factory points to four customers it
3 contends were lost because of GT’s false advertising regarding the alcohol content of its
4 Enlightened kombucha drinks: (1) Tender Greens; (2) Lightning in a Bottle; (3) Jimbo’s; and (4)
5 Café Gratitude. (Dkt. 369, TF Memo. at 9-10, 20-22); (see also Dkt. 375, Plaintiff Tortilla Factory,
6 LLC’s Opposition Memorandum of Points and Authorities Re: Bench Trial – Liability (“TF Reply”)
7 at 12-14).
8 49. As an initial matter, Tortilla Factory did not produce any witnesses from any of the four
9 customers to testify as to why they no longer sold or carried Kombucha Dog and/or why they sold
10 GT’s Enlightened products.8 (See, generally, Dkt. 363, RT I); (Dkt. 367, RT II). Instead, Tortilla
11 Factory relied primarily on the testimony of Mr. Faye, which the court found to be largely
12 speculative.
13 50. In any event, with respect to Tender Greens and Lightning in the Bottle, GT’s did not
14 sell Enlightened kombucha in bottles, but instead provided its kombucha in kegs. (See Dkt. 367,
15 RT II at 71-72) (Mr. Dave testifying that GT’s supplied Tender Greens with kegs); (id. at 92) (Mr.
16 Dave agreeing with defense counsel that “Enlightened was sold through the keg” at Tender
17
18
also Dkt. 373-1, GT’s Living Foods, LLC’s [Proposed] Findings of Fact and Conclusions of Law
19 at ¶ 63); (id. at ¶ 67). Tortilla Factory also relied on two bottles of Classic kombucha that were
purchased on the same date and at the same store with the same “enjoy by” date that had
20 different amounts of sugar disclosed. (See Dkt. 363, RT I at 64-65); (Exh. 26, Photo of bottle
labels). However, Mr. Dave provided an explanation for that labeling. (See Dkt. 367, RT II at 69-
21
70). But even without that explanation, a single example of a labeling inconsistency is insufficient
22 to show that GT’s falsely labeled the amount of sugar in its Classic kombucha drinks or that Tortilla
Factory suffered competitive harm as a result of that single instance. In short, Tortilla Factory has
23 failed to prove that it suffered any competitive harm as a result of GT’s sugar labeling with respect
to both the Enlightened and Classic kombucha products. See Lexmark, 572 U.S. at 133, 134
24 S.Ct. at 1391.
25 8 Such testimony could have helped clear up vague testimony regarding, for example,
Tortilla Factory’s business relationship with Tender Greens. Mr. Faye never testified that Tender
26
Greens made the decision to stop carrying Kombucha Dog. (See, generally, Dkt. 363, RT I at 67-
27 68). Instead, he merely stated that Tender Greens asked Tortilla Factory if it “could match
marketing dollars” but Mr. Faye believed that “federal alcoholic [sic] [laws] prohibit[ed]” Tortilla
1 Greens); (see id. at 74-75) (Mr. Dave testifying that GT’s used kegs at the Lightning in the Bottle
2 festival, which came directly from GT’s facility); (id. at 92) (Enlightened was sold through kegs at
3 Lightning in the Bottle). And there are no test results or other evidence to establish that the
4 alcohol level in the Enlightened kombucha supplied in kegs to Tender Greens or Lightning in the
5 Bottle exceeded 0.5% ABV. (See, generally, Dkt. 363, RT I); (Dkt. 367, RT II); (Dkt. 369, TF
6 Memo.); (Dkt. 363, RT I at 212-213) (Dr. Ebersole not aware of testing done at Lightning in a
7 Bottle or Tender Greens).
8 51. However, even if GT’s sold its Enlightened kombucha in bottles to Tender Greens and
9 Lighting in a Bottle, Tortilla Factory still failed to show competitive harm. With respect to Lightning
10 in the Bottle, GT’s sold Enlightened flavors that were specifically developed for the 2016 and 2017
11 festivals.9 (See Dkt. 367, RT II at 75-76). Moreover, because Tortilla Factory did not produce a
12 witness from Lightning in the Bottle, Tortilla Factory’s contention that if GT’s had not agreed to the
13 exclusivity agreement, (see Dkt. 363, RT I at 252), Tortilla Factory would have continued to sell
14 at the festival is speculative. As noted above, GT’s is not the only kombucha brand marketed as
15 nonalcoholic. Thus, if Lightning in the Bottle wanted a kombucha producer to sign an exclusivity
16 agreement, (see id.) (Mr. Dave testifying that the exclusivity provision was “offered as part of the
17 expense of doing the sponsorship” and that he did not “recall [GT’s] initiating the request”), it had
18 countless other nonalcoholic kombucha alternatives to choose from. (See id. at 75-76) (“Q: There
19 are many Kombucha brands in L.A. that are not marketed as alcoholic beverages, correct? A:
20 Yes. Q: More than just GT’s, correct? A: Yes.”); (see also Dkt. 367, RT II at 39) (Mr. Dave
21 testified that in 2013, there was an influx of kombucha brands, some of which had “very, very deep
22 pockets, because they were backed by Coke and Pepsi and PE firms[.]”).
23 52. With respect to Tender Greens, Tortilla Factory did not establish that GT’s
24 representations regarding the alcohol content of its Enlightened products proximately caused
25 competitive harm to Tortilla Factory. Tortilla Factory only produced evidence, via testimony from
26
27
9 As noted earlier, the 2016 flavor, Golden Sage, has never been sold in retail, (Dkt. 367,
1 Mr. Faye, that Tender Greens asked Tortilla Factory to “match marketing dollars[,]” which Mr. Faye
2 understood was prohibited by “federal alcoholic” laws.10 (See Dkt. 363, RT I at 67-68). Mr Faye
3 also testified that Tender Greens was conducting a product review, and ultimately selected GT’s.
4 (See id. at 125-26). At most, Tortilla Factory provided some evidence that subsequent to its
5 decision to not offer “marketing dollars,” Tender Greens sold GT’s kombucha (see id. at 68) (Mr.
6 Faye testimony that GT’s replaced Tortilla Factory at Tender Greens); (id. at 125-26), and that
7 GT’s paid for menu boards. Tortilla Factory’s characterization of the evidence appears to be
8 based “on a theory of post hoc ergo propter hoc, i.e., ‘after this, therefore because of this.’” A.L.S.
9 Enterprises, Inc. v. Robinson Outdoor Products, LLC, 2017 WL 393307, *8 (W.D. Mich. 2017).
10 But Tortilla Factory’s characterization of the evidence is unpersuasive and insufficient, because
11 even if Tender Greens required kombucha suppliers to provide “marketing dollars” and Tortilla
12 Factory was disqualified because it did not provide such funds, that would not mean, given the
13 number of other nonalcoholic kombucha products available, that GT’s caused Tender Greens to
14 oust Tortilla Factory. Indeed, Mr. Faye conceded that Tender Greens also sold Health-Ade, which
15 is not marketed as an alcoholic product. (See Dkt. 363, RT I at 125-26). Also, Mr. Dave testified
16 that GT’s replaced Health-Ade at Tender Greens, not Kombucha Dog, (see Dkt. 367, RT II at 73)
17 (Mr. Dave testimony that GT’s replaced Health-Ade, not Kombucha Dog at Tender Greens), and
18 that Tender Greens “sells more than one brand[.]” (Dkt. 363, RT I at 249). In other words, Tortilla
19 Factory’s evidence is insufficient to establish that GT’s was the proximate cause of Tortilla Factory
20 losing the Tender Greens account.
21 53. In short, Tortilla Factory has failed to show that it was harmed with respect to Tender
22 Greens and Lightning in the Bottle as a result of GT’s representations regarding the alcohol
23 content of its Enlightened products or lack of a government alcohol label.
24 54. With respect to Jimbo’s, Mr. Faye testified that Tortilla Factory sold Kombucha Dog in
25
26
10 Mr. Faye’s testimony was vague, including with respect to his response to Tender
27 Green’s request for marketing dollars. He testified that he knew that it “was against the Federal
Alcohol Act,” (see Dkt. 363, RT I at 136), but never indicated what his actual response was to
1 Jimbo’s stores from “2014, maybe till as late as to 2017,” (Dkt. 363, RT I at 69), but that “Jimbo’s
2 stopped supporting” Kombucha Dog because it wanted to offer in-store tastings, but did not have
3 an on-premises alcohol consumption license. (See id. at 69-70) (“Jimbo’s stopped supporting us
4 throughout their five stores, because we couldn’t do in-store tasting demos, which they wanted
5 us to do. And that’s because they didn’t have an on-premises consumption license. So we – it
6 was my – we were not allowed to do in-store tasting at any of the Jimbo’s.”). Mr. Faye stated that
7 GT’s replaced Kombucha Dog. (Id. at 69).
8 55. As an initial matter, the court did not find Mr. Faye’s testimony regarding Jimbo’s
9 credible. Not only was it vague, but it was contradicted by Mr. Dave’s testimony that GT’s was
10 selling at Jimbo’s since 1999 – well before Kombucha Dog was even founded. (See Dkt. 367, RT
11 II at 82) (Mr. Dave testifying that Jimbo’s was one of GT’s “early, early stores, even before Whole
12 Foods”); (id. at 32) (Mr. Dave testifying that in 1999, GT’s got into Whole Foods). In fact, Mr. Faye
13 conceded on cross-examination that GT’s was already selling at Jimbo’s. (See Dkt. 363, RT I at
14 126) (“Q: And GT’s was already in Jimbo’s, correct? A: Yes.”).
15 56. In addition, Jimbo’s is identified as an account that went “cold” due to the disastrous
16 distribution relationship with Young’s Market. More specifically, Jimbo’s is listed on a document
17 identifying “Kombucha Dog accounts that Young’s Market allowed to go cold[,]” (Dkt. 363, RT I at
18 115), meaning that Tortilla Factory had the account “before Young’s came along, and then
19 Young’s came, and they let them go cold[.] Those accounts died[.]”11 (Id. at 114-15); (id. at 118)
20 (Mr. Faye stating that he “didn’t know the particulars” regarding Jimbo’s); (Exh. 33 at TF002160)
21
22
11 GT’s spends a great deal of time on Tortilla Factory’s “disast[rous]” business relationship
23 with Young’s Market. (See Dkt. 372, GT’s Memo. at 6-8, 9-10, 15 & 25). While the court agrees
that the deal with Young’s Market “kneecapped” Tortilla Factory’s sales, (see id. at 8); (see Dkt.
24 363, RT I at 106) (“Q: Things were bad with Young’s from the start, weren’t they? A: Yes Q: And
by 2017, the agreement [] was a disaster? A: Yes.”); (id. at 119) (“Q: [T]he deal you signed with
25 Young’s almost put you out of business, correct? A: Perhaps, yes.”); (Exhs. 88-89), Tortilla
Factory does not need to prove, at the liability stage, that each lost sale was attributed to GT’s
26
conduct. Tortilla Factory need only show that it suffered or could suffer competitive harm. Tortilla
27 Factory’s tanked sales and lost customers as a result of its deal with Young’s Market would have
been a significant factor in assessing monetary relief, but since the court has determined that
1 (listing five Jimbo’s accounts on document regarding Young’s Cold Accounts).
2 57. Finally, even accepting Mr. Faye’s testimony as credible, Tortilla Factory has failed to
3 show that GT’s representations about alcohol content or the labeling of its Enlightened products
4 caused Tortilla Factory to lose the Jimbo’s account. If Jimbo’s did not sell Kombucha Dog
5 because an alcohol consumption or similar license was required, (see Dkt. 363, RT I at 69-70),
6 then there is no basis to find that Jimbo’s decision had anything to do with GT’s failure to label its
7 Enlightened drinks with the alcohol warning label or passing its drinks off as nonalcoholic. This
8 is particularly so given Tortilla Factory’s acknowledgment that there are many kombucha brands
9 in Los Angeles that are not marketed as alcoholic beverages. (See id. at 75-76); (see also Dkt.
10 367, RT II at 40) (Mr. Dave testifying that there are approximately 300 plus kombucha brands in
11 the United States.).
12 58. For similar reasons, Tortilla Factory’s contentions regarding Café Gratitude are
13 unavailing. As an initial matter, given Mr. Faye’s vague testimony, it is unclear whether Café
14 Gratitude ever made the decision to stop selling Kombucha Dog. (See Dkt. 363, RT I at 68) (“Café
15 Gratitude didn’t have an off-premises alcohol license, and they were selling to-go. So once we
16 found out that the license didn’t match with their sales. We were replaced with GT’s in the to-go
17 kiosk[.]”); (see id. at 141-43). But based on its post-trial briefing, it appears that Tortilla Factory
18 is contending that it (rather than Café Gratitude) made the decision to stop selling Kombucha Dog
19 to Café Gratitude because Café Gratitude did not have the proper license. (See Dkt. 369, TF
20 Memo. at 10) (“Tortilla Factory could no longer permit their product to be sold in violation of the
21 alcohol laws, and Café Gratitude replaced Kombucha Dog in its to-go kiosk with GT’s Enlightened,
22 which is improperly labeled as non-alcoholic.”).
23 59. As with Jimbo’s, Mr. Faye’s testimony regarding Café Gratitude is not credible. Like
24 Jimbo’s, Café Gratitude is also listed as a Young’s Market cold case. (See Dkt. 363, RT I at 114-
25 15); (Exh. 33 at TF002157). When confronted with this fact, Mr. Faye offered an equivocal
26 response: “I think that was a – more of an issue based on on-premises and off-premises
27 licensing. . . . Café Gratitude didn’t have the correct licensing for off-premises sales.” (Dkt. 363,
RT I at 115). But if Café Gratitude did not have the proper license to sell alcoholic beverages in
1 its to-go kiosk, then it could not sell Kombucha Dog. And that cannot be attributed to GT’s
2 representations regarding the alcohol content of its Enlightened products. In other words, GT’s
3 was not the cause of either Tortilla Factory’s or Café Gratitude’s decision.12
4 60. In short, Tortilla Factory has not proved “economic or reputational injury flowing directly
5 from deception wrought by [GT’s] advertising[.]” Lexmark, 572 U.S. at 133, 134 S.Ct. at 1391.
6 II. LIABILITY UNDER THE UCL.
7 61. The UCL prohibits “unlawful, unfair or fraudulent business act or practice and unfair,
8 deceptive, untrue or misleading advertising[.]” Cal. Bus. & Prof. Code § 17200.13 Tortilla Factory
9 has proceeded under the unlawful and false advertising prongs. (See Dkt. 348, PTCO at ¶ 7(a)).
10 62. With respect to the unlawful prong, § 17200 “borrows violations of other laws and treats
11 them as unlawful practices that the [UCL] makes independently actionable.” Chabner v. United
12 Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000) (internal quotation marks omitted).
13 63. In addition to proving that a defendant has violated the UCL, a plaintiff must also prove
14 that it has “lost money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code
15 § 17204. In other words, a plaintiff must establish standing to bring a UCL claim. See Kwikset
16 Corp. v. Superior Court, 51 Cal.4th 310, 318 (2011) (referring to § 17204 as standing provision).
17 64. To establish standing under the UCL, a plaintiff must “(1) establish a loss or deprivation
18 of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that
19 economic injury was the result of, i.e., caused by, the unfair business practice or false advertising
20 that is the gravamen of the claim.” Kwikset Corp., 51 Cal.4th at 322 (emphasis in original).
21 65. “There are innumerable ways in which economic injury from unfair competition may be
22 shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than
23
12 In its post-trial brief, Tortilla Factory refers to market distortion allegedly caused by GT’s.
24 (See Dkt. 369, TF Memo. at 22). However, Tortilla Factory did not present any evidence of such
market distortion. (See, generally, Dkt. 363, RT I); (Dkt. 367, RT II). Nor did it include such a
25
theory in the Pretrial Conference Order. (See, generally, Dkt. 348, PTCO).
26
13 Although Tortilla Factory also cites to Cal. Bus. & Prof. Code § 17500, California’s false
27 advertising law, (see Dkt. 369, TF Memo. at 23); (Dkt. 370-1, TF FF at ¶ 158), the SAC does not
bring such a claim or reference that statute in its UCL cause of action. (See Dkt. 34, SAC at ¶¶
1 he or she otherwise would have; (2) have a present or future property interest diminished; (3) be
2 deprived of money or property to which he or she has a cognizable claim; or (4) be required to
3 enter into a transaction, costing money or property, that would otherwise have been unnecessary.”
4 Kwikset Corp., 51 Cal.4th at 323.
5 66. Here, Tortilla Factory relies on the same evidence and arguments as it did with respect
6 to the Lanham Act claim. (See Dkt. 369, TF Memo. at 24) (“As set forth in Section III.G, supra,
7 Tortilla Factory has established that it suffered economic injury from GT’s misrepresentations[.]”);
8 (Dkt. 370-1, TF FF at ¶¶ 163-65). And for the reasons set forth above, Tortilla Factory has failed
9 to show it suffered a loss or deprivation of money or property that was caused by GT’s alleged
10 false advertising.
11 CONCLUSION
12 Based on the foregoing, IT IS ORDERED THAT judgment shall be entered in favor of
13 defendant.
14 Dated this 27th day of September, 2023.
15 /s/
Fernando M. Olguin
16 United States District Judge
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