Amy Totenberg, United States District Judge.
Competitors often go to great lengths to get an edge over their opponents.
In addition to its patent infringement claims in Count I, Hi-Tech accuses Hodges, doing business as Double Dragon Labs and Double Dragon Pharmaceuticals, of attempting to gain a competitive edge by putting so-called "designer steroids" in its products. (Compl. ¶¶ 51-55.) Designer steroid products are "analog[s] of an anabolic steroid, created by slightly altering the molecule of an anabolic steroid." (Compl. ¶ 46.) Section 2 of the Anabolic Steroid Control Act of 2004 added substances deemed designer steroid products to the definition of "anabolic steroids" in the Controlled Substances Act. Anabolic Steroid Control Act of 2004, § 2, 21 U.S.C. § 802(41)(A). (Compl. ¶¶ 47-48.) Among these substances was 4-chloro-17α-methyl-androsta-1,4-diene-3, 17β-diol.
Hi-Tech predicates a number of claims on the alleged inclusion of Halovar in SOS-500. In Count II of its Complaint, Hi-Tech argues that Hodges is liable for damages under § 43(A)(1)(B) of the Lanham Act due to its deceptive marketing practices, false statements, and misbranding. (Compl. ¶¶ 92-99.) Furthermore, Hi-Tech alleges that Hodges violated the Food, Drugs, and Cosmetics Act (FDCA) by failing to list Halovar as an active ingredient on its label. (Compl. ¶¶ 93-94.) According to Hi-Tech, this violation of the FDCA resulted in "the tendency to deceive a substantial segment of the public into believing that they are purchasing a product
In Counts III and IV, Hi-Tech claims that these same practices, statements, and misbranding subject Hodges to liability under the Georgia Deceptive Trade Practices Act, O.C.G.A. § 10-1-372(a) (Compl. ¶¶ 100-07), and at common law for unfair competition. (Compl. ¶¶ 108-15.) Finally, in Counts V through VII, Hi-Tech sets forth Georgia RICO claims against Hodges. (Compl. ¶¶ 116-43.)
Hodges seeks dismissal of Counts II through VIII by characterizing them as an "attempt to shoehorn alleged FDCA violations" into "Lanham Act, Georgia Deceptive Trade Practices Act, unfair competition and RICO claims," and arguing that the FDCA precludes those claims. (Doc. 11 at 2.) Additionally, Hodges seeks dismissal of Hi-Tech's Georgia RICO claims, arguing that they are inappropriately predicated on patent infringement claims and FDCA violations, and Hi-Tech lacks RICO standing. (Doc. 11 at 11-15.) Hodges does not seek to dismiss Hi-Tech's patent claims.
Hi-Tech's Motion to Dismiss Hodges' counterclaims seeking a declaratory judgment of non-infringement and invalidity of the '446 Patent also is before the Court [Doc. 16]. Hi-Tech argues that patent claims are "subject to the general pleading requirements of Twombly and Iqbal" and under that standard, Hodges has failed to plead any facts to support its claim. (Doc. 16 at 5-6, 8-10.)
For the reasons set forth below, the Court
A complaint is subject to dismissal under Rule 12(b)(6) where it appears that the facts alleged fail to state a "plausible" claim for relief. Bell Atlantic v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Fed. R. Civ. P. 12(b)(6). A claim is plausible when the plaintiff alleges factual content that "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
The plausibility standard requires that a plaintiff allege sufficient facts "to raise a reasonable expectation that discovery will reveal evidence" that supports the plaintiff's claim. Twombly, 550 U.S. at 556, 127 S.Ct. 1955. A plaintiff's "obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. To survive dismissal, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 555, 570, 127 S.Ct. 1955; Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
"Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial
"The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937. In considering a motion to dismiss, a court should "1) eliminate any allegations in the complaint that are merely legal conclusions; and 2) where there are wellpleaded factual allegations, `assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.'" Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir. 2010) (quoting Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937). Further, "courts may infer from the factual allegations in the complaint `obvious alternative explanation[s],' which suggest lawful conduct rather than the unlawful conduct the plaintiff would ask the court to infer." Id. (quoting 556 U.S. at 678-79, 129 S.Ct. 1937).
Civil RICO claims based on fraud are subject to Rule 9(b)'s heightened pleading standard and must be pled with particularity. Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F.3d 1309, 1316 (11th Cir. 2007). A substantive RICO allegation must comply not only with the plausibility criteria of Twombly and Iqbal but must also state with particularity the circumstances constituting the fraud or mistake. Id.; Fed. R. Civ. P. 9(b). "A plaintiff must allege: (1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the Plaintiffs; and (4) what the defendants gained by the alleged fraud." Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1291 (11th Cir. 2010). In a case involving multiple defendants, the complaint may not lump together all of the defendants, as "the complaint should inform each defendant of the nature of his alleged participation in the fraud." Brooks v. Blue Cross & Blue Shield of Florida, Inc., 116 F.3d 1364, 1381 (11th Cir. 1997); Am. Dental Ass'n, 605 F.3d at 1291 ("The plaintiff must allege facts with respect to each defendant's participation in the fraud.").
Hi-Tech accuses Hodges of including the designer steroid Halvoar in Hodges' SOS-500 dietary supplement product to gain a competitive advantage. Hi-Tech partially bases its Lanham Act claim on the argument that SOS-500 should be considered a "new drug" under the FDCA, not a dietary supplement. (Compl. ¶ 56.) Under this argument, Hi-Tech claims that Hodges should have submitted a new drug application ("NDA") to the FDA before placing it on the market. (Compl. ¶¶ 56-60.) Hi-Tech also characterizes SOS-500 as a prescription drug, and claims that Hodges violated the FDCA by not labeling it as such and failing to provide instructions for safe use. (Compl. ¶¶ 61-71.) Hi-Tech finally argues that whether SOS-500 was a new drug, a prescription drug, or just a dietary supplement that contained a Schedule III controlled substance, the supplement ran afoul of the FDCA's labeling requirements.
Hodges argues that Hi-Tech is really just asserting rights under the FDCA that it cannot bring on its own behalf, because "all such proceedings for the enforcement, or to restrain violations [of the FDCA] shall be by and in the name of the United States." 21 U.S.C. § 337(a); Doc. 11 at 6.
However, there are some circumstances when the FDCA does preclude Lanham Act claims. Those circumstances arise when a Lanham Act claim would require a court to make determinations about the safety, legality, and classification of new drugs that are more properly within the exclusive purview of the FDA. Id. at 2238 ("Enforcement of the FDCA and the detailed prescriptions of its implementing regulations is largely committed to the FDA."). Therefore, "courts have refused to allow a Lanham Act claim to proceed where, in order to determine the falsity or misleading nature of the representation at issue, the court would be required to interpret and apply FDCA statutory regulatory provisions." Mutual Pharm. Co. v. Ivax Pharm., Inc., 459 F.Supp.2d 925, 934 (C.D. Cal. 2006). Courts have historically used this rule out of deference to the FDA, such as "when the FDA has failed to take a position on the particular issue that is the subject of the alleged false representation comprising the Lanham Act claim." Id.; see also Sandoz Pharm. Corp. v. Richardson-Vicks, Inc., 902 F.2d 222, 230-31 (3d Cir. 1990) (FDCA precluded Lanham Act false advertising claims related to false advertising by labeling an ingredient "inactive" when the FDA had not yet determined whether the ingredient was active or inactive); Graceway Pharm., LLC v. River's Edge Pharm., LLC, 2:08-cv-0067-RWS, 2009 WL 3753586, at *8-9 (N.D. Ga. Nov. 6, 2009) (Story, J.) (finding FDCA precluded Lanham Act claims when the court would have to make findings in the absence of clearly defined standards from the FDA).
JHP Pharm., LLC v. Hospira, Inc., 52 F.Supp.3d 992, 999 (C.D. Cal. 2014) is illustrative. In JHP, the plaintiff manufactured an injectable epinephrine that the FDA approved for marketing as a drug. Id. at 996. It sued three competitors whose NDAs were pending adjudication by the FDA, claiming that the defendants misbranded their products by claiming that they were FDA-approved and safe for use. Id. The court found that POM Wonderful established a "general presumption ... that Lanham Act claims with regard to FDCA-regulated products are permissible and, indeed, desirable." Id. at 1000. While allowing many of the plaintiff's Lanham Act claims to proceed, the JHP court did find that the FDCA precluded the plaintiff's claim that the defendants deceptively advertised their products as safe and fully compliant with all relevant FDA regulations. JHP Pharm., LLC, 52 F.Supp.3d at 1004 ("the question of legality directly implicates the FDA's rulemaking authority. The determination of whether a drug is "new," and whether it can be lawfully marketed under the FDCA, involves complex issues of history, public safety, and administrative priorities that Congress has delegated exclusively to the FDA.") The
Nutrition Distribution LLC v. Custom Nutraceuticals LLC, 194 F.Supp.3d 952, 956-57 (D. Az. 2016) provides another example of a court navigating the tightrope between permitted and precluded Lanham Act claims. Nutrition Distribution involved Lanham Act claims by rival dietary supplement manufacturers, much like the case at bar. Id. at 954-55.
Here, Hi-Tech advances theories that do appear to step on the FDCA's toes, while at the same time advancing more conventional false advertising-like claims that do not. For example, Hi-Tech alleges that Hodges never sought approval from the FDA for SOS-500. (Compl. ¶ 59.) It also concludes that SOS-500 is a "new drug" (Compl. ¶ 56), and a "prescription drug." (Compl. ¶ 64.) Hi-Tech's Lanham Act claims cannot proceed to the extent that they rely on these conclusions. Hodges has not given the FDA an opportunity to determine whether SOS-500 is a new drug or a prescription drug, and it is inappropriate for the Court to make those determinations in place of the FDA. POM Wonderful, 134 S.Ct. at 2238. As in Nutrition Distribution, the Court declines to determine whether the supplement at issue is a drug or whether its sale violated the FDCA, because a factfinder can determine whether Defendant's statements about its product were misleading under the Lanham Act without reaching those issues. Nutrition Distribution, 194 F.Supp.3d at 956-57. As the court in JHP observed, the "determination of whether a drug is `new,' and whether it can be lawfully marketed under the FDCA, involves complex issues of history, public safety, and administrative priorities that Congress has delegated exclusively to the FDA." 52 F.Supp.3d at 1004. To the extent that the Court would be required to make such determinations, Counts II, III, and IV are precluded. The Complaint may, however, proceed on narrower grounds.
Plaintiff alleges that Defendants market their SOS-500 products as "natural
Hodges also argues for dismissal of Hi-Tech's Georgia Uniform Deceptive Trade Practices Act and unfair competition claims for the same reasons it seeks to dismiss Hi-Tech's Lanham Act claims.
The Court next turns to Hi-Tech's Georgia RICO claims. The complaint alleges, in very general terms, a conspiracy between Hodges and John Does I through V. According to the complaint, "John Does I-V are individuals who authorize, participate in, direct, control, cause, ratify, and/or are the moving force behind the selection and sale and distribution of the products and/or personally sell the products described herein." (Compl. ¶ 7.) They "are employed by and associated with Hodges Consulting, Inc." (Compl. ¶ 120.) Together, Defendants intentionally created a scheme "to [] defraud [Hi-Tech] out of sales and profits through their patent-infringing and Designer Steroid Products" (Compl. ¶ 122), and "through their false and/or misleading claims regarding the content, quality, characteristics, and/or ingredients of their designer steroid products." (Compl. ¶ 123.) Hodges and its unnamed co-defendants engaged in mail fraud (Compl. ¶¶ 125-28) and wire fraud (Compl. ¶¶ 129-133) in the furtherance of their conspiracy against Hi-Tech. Beyond these allegations, the factual predicate for these claims are remarkably thin.
Hi-Tech asserts claims under all three subsections of Georgia's RICO statute, O.C.G.A. § 16-14-4. Under subsection (a), "[i]t shall be unlawful for any person, through a pattern of racketeering activity or proceeds derived therefrom, to acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money." A "pattern of racketeering activity" means:
O.C.G.A. § 16-14-3(4)(A). Subsection (b) forbids participation in such an enterprise, and subsection (c) criminalizes conspiracy to violate subsections (a) and (b). O.C.G.A. § 16-14-4. "[T]o state a claim under [O.C.G.A. § 16-14-4], a claimant must allege at least two predicate acts of conduct that are crimes chargeable by indictment under certain laws of the state of Georgia or the United States." Dalton v. State Farm Fire and Cas. Co., 1:12-CV-02848-RWS, 2013 WL 1213270, at *3 (N.D. Ga. Mar. 22, 2013) (Story, J.). While in certain respects, the Georgia RICO statute is broader than the Federal RICO statute, Georgia's RICO statutes are "essentially identical to the Federal RICO statutes...." Morast v. Lance, 807 F.2d 926, 933 (11th Cir. 1987); Chancey v. State, 256 Ga. 415,349 S.E.2d 717, 722 (1986).
Hi-Tech responds that patent infringement and FDCA violations are not the predicate acts that support its RICO claims. (Doc. 15 at 12.) Its Brief in Opposition to Hodges' Motion to Dismiss clarifies that it is predicating its RICO claims on mail and wire fraud. (Doc. 15 at 12, Compl. ¶¶ 125-33.) But the complaint makes only conclusory references to mail and wire fraud and offers no specifics. These conclusory allegations cannot support Georgia RICO claims under either Georgia law or Eleventh Circuit precedent. See Am. Dental Ass'n., 605 F.3d at 1291 (11th Cir. 2010) ("A plaintiff must allege: (1) the precise statements, documents, or misrepresentations made; (2) the time, place, and person responsible for the statement; (3) the content and manner in which these statements misled the Plaintiffs; and (4) what the defendants gained by the alleged fraud."). However, because Hodges failed to adequately brief Hi-Tech's argument about mail and wire fraud, the Court declines to dismiss the RICO claims on these grounds.
Hodges also contends that Hi-Tech failed to plead proximate cause. (Doc. 11 at 14-15.) To plead proximate cause for a Georgia RICO claim, the plaintiff must create a connection between the injury and the predicate acts. Longino v. Bank of Ellijay, 228 Ga.App. 37, 491 S.E.2d 81, 85 (1997) ("A plaintiff cannot allege merely that an act of racketeering occurred and that he lost money. He must show a causal connection between his injury and the predicate acts.") Hodges argues:
(Doc. 11 at 15.) Here, the Court agrees with Hodges: it cannot make any causal connections or reasonable inferences about proximate cause, because Hi-Tech has simply not alleged facts to support its claims. The Court therefore
The Court will provide some guidance in the event that Hi-Tech chooses to amend its complaint. Plaintiffs cannot simply include magic words such as "conspiracy" and "mail fraud" in a complaint to plead a claim where years of relatively clear, consistent jurisprudence have set forth clear standards. Those standards require plaintiffs to put defendants on notice of specific acts, statements, documents, places, and people behind the magic words. Am. Dental
Finally, the Court turns to the issue of Hodges' patent counterclaim. Along with its answer, Hodges asserted counterclaims seeking declaratory judgments of non-infringement and invalidity of the '446 Patent. (Doc. 12 at 10-13.) Hi-Tech argues that the counterclaims should be dismissed because Hodges did not plead any facts to support its claims. It contends that the abrogation of Rule 84 and Form 18 subjects patent claims to the pleading requirements set forth in Iqbal and Twombly. (Doc. 16 at 5-7.) Hodges counters that even after the abrogation of Rule 84 and Form 18, pleading the statutory basis of a patent counterclaim without providing any factual support is still permissible. (Doc. 21, at. 8-9.) Hodges appeared to be so convinced of its position that it omitted from its Answer any factual basis for its counterclaims. It does ask for leave to amend should the Court agree that its claims are now subject to Iqbal and Twombly, and its counterclaims do not meet that standard in their current form.
Rule 84 and its forms, including Form 18, were abrogated in December 2015. Robern, Inc. v. Glasscrafters, Inc., 206 F.Supp.3d 1005 (D.N.J. 2016). Prior to this event, the forms contained in Rule 84's appendices "illustrate[d] the simplicity and brevity that these rules contemplate." Fed. R. Civ. P. 84 as amended Dec. 1, 2007. "Form 18 require[d] little more than a conclusory statement alleging that the defendant infringed on the claimant's patent." Graphic Packaging, Int'l., Inc. v. C.W. Zumbiel Co., 1:10-CV-3008-AT, 2011 WL 5829674, at *4 (N.D. Ga. Aug. 1, 2011). Therefore, before December 2015, courts generally found patent claims and counterclaims pled using Form 18 sufficient to satisfy Rule 8's pleading requirements. See McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1356-57 (Fed. Cir. 2007); Microsoft Corp. v. Phoenix Solutions, Inc., 741 F.Supp.2d 1156, 1158, 1162-63 (C.D. Cal. 2010).
However, after the forms were abrogated, courts have almost unanimously held that all patent claims and counterclaims are subject to the pleading requirements
The Court agrees with the reasoning advanced by the vast majority of other courts confronted with this issue. Prior to the abrogation of Rule 84 and Form 18, "to the extent ... Twombly and its progeny conflict[ed] with [Form 18] and create[d] different pleading requirements, the forms control[led]." In re Bill of Lading Transmission and Processing Sys. Patent Litig., 681 F.3d 1323, 1334 (Fed. Cir. 2012). Form 18 served as an alternative to Rule 8, it did not serve to alter any "existing pleading standards or otherwise change the requirements of Civil Rule 8." Fed. R. Civ. P. Rule 84, Official Comment on 2015 amendment. The abrogation of Rule 84 and Form 18 merely eliminated what was once a "safe harbor [from Iqbal and Twombly] for direct infringement claims." Ruby Sands, LLC v. American Nat'l Bank of Tex., Case No. 2:15-cv-1955-JRG, 2016 WL 3542430, at *2 (E.D. Tex. June 28, 2016). The Court finds that Hodges' counterclaims are subject to the pleading requirements set forth in Rule 8, as described in Iqbal and Twombly.
The Court holds that Hodges has not adequately pled its counterclaims under Iqbal because it offers no factual support for those counterclaims whatsoever. In its counterclaim for invalidity, Hodges asserts that its claims are grounded in the requirements for patentability as set forth in Sections 101, 102, 103, "and/or 112." (Doc. 10, ¶ 17.) Its legal conclusions do not provide any insight into how or why Hodges believes that its claims are grounded in the requirements for patentability. (Doc. 10, ¶¶ 18-19.) Its counterclaim for a declaratory judgment of non-infringement merely states, in essence, that it did not infringe on Hi-Tech's patent. (Doc. 10, ¶¶ 11-12.)
None of the cases that Hodges cites to for the proposition that it has adequately pled its counterclaims under Iqbal and Twombly are persuasive. Graphic Packaging, Int'l., Inc., 2011 WL 5829674, at *3.
The Court therefore
For the foregoing reasons, the Court:
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Finally, the Court presently believes that it should appoint a Special Master to oversee the patent litigation portion of this case. If the parties have any objection to the Special Master, they are
The Court notes that it appointed Joseph W. Berenato, III as a Special Master in Shire Development, LLC v. Osmotica Pharmaceutical Corp., Case No. 12-cv-903-AT, and the Court views his experience as potentially appropriate for this matter. The Court