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Purple Innovations, LLC v. Honest Reviews, LLC

United States District Court, D. Utah

February 9, 2018

PURPLE INNOVATION, LLC, a Delaware limited liability company, Plaintiff,
HONEST REVIEWS, LLC, a Florida Corporation, RYAN MONAHAN, an individual, and GHOSTBED, INC., a Delaware corporation, Defendants.


          Dee Benson, United States District Judge

         Before the court is Plaintiff's Motion for Sanctions. (Dkt. No. 229.) In its motion, Plaintiff requests sanctions for Defendants' submission of misleading and false statements to the court in opposing Plaintiff's request for preliminary injunction. Pursuant to civil rule 7-1(f) of the United States District Court for the District of Utah Rules of Practice, the court elects to determine the motion on the basis of the written memoranda and finds that oral argument would not be helpful or necessary. DUCivR 7-1(f).


         Plaintiff is a manufacturer of bed-in-a-box mattresses and other bedding products. (Compl.[1] at ¶¶ 19-29.) Plaintiff advertises and sells its products solely through an e-commerce platform, rather than maintaining brick and mortar stores. (Id. at ¶ 29.) Because Plaintiff relies strictly on an e-commerce sales strategy, online comment and review websites can have a significant impact on Plaintiff's business. (Id. at ¶¶ 38-39.)

         In January 2017, a new mattress review owned by Defendant Honest Reviews, LLC (“HMR”) and operated by HMR's sole owner, Defendant Ryan Monahan (“Monahan”), began to post reviews of various mattress and bedding products. (Id. at ¶¶ 9, 10, 44.) HMR's reviews or “articles” about Plaintiff's products suggested a link between a white powder used on some of Plaintiff's products and cancer-causing agents. (Id. at ¶¶ 47, 53-54.) For example, one article compared the powder to a “ground down…plastic mustard container” or “glass coke bottle, ” which consumers will inhale every night for “eight to ten hours.” (Id. at ¶ 71.) The article, alluding to Plaintiff's product, also included a video of the “cinnamon challenge, ” in which people were coughing, gagging, spitting, crying, and choking on cinnamon. (Id. at ¶¶ 72-74.) Plaintiff received low marks on the HMR site, including an image of a large red “X, ” while its competitors, including Defendant GhostBed, Inc. (“GhostBed”), received favorable marks. (Id. at ¶ 82.)

         The HMR website repeatedly stated that it was not influenced by any mattress company and that it did not receive financial compensation for its reviews. (Id. at ¶¶ 155-64.) Some of those statements included that HMR “receives zero affiliate commissions, ” “does not have any affiliate commission sales relationships with mattress companies, ” and is “free from corporate or conglomerates…[that] silence or shape editorial narratives and truths.” (Id. at ¶¶ 158-63.) The site also asserted that the posts on HMR “have total editorial independence” for which “[n]o one has influence.” (Id. at ¶ 163.) The HMR website also stated that it is not interested in “influencing a purchase decision to promote a company” or in “a few large companies controlling the narrative.” (Id. at ¶ 164.)

         Plaintiff filed its Complaint on February 24, 2017, alleging claims for false advertising and false association under the Lanham Act and Utah common law, tortious interference with economic relations, defamation, trade libel and injurious falsehood, civil conspiracy, and violation of the Utah Truth in Advertising Act. (Compl. at ¶¶ 220-72.) Plaintiff alleged that the statements made about its products, including their connection to cancer-causing agents, are false. (Id. at ¶¶ 221-25.) Plaintiff also alleged that the statements on the HMR website regarding its intellectual and financial independence from any mattress company are false, and that Monahan, the sole owner and operator of HMR, was closely affiliated with Plaintiff's direct competitor, GhostBed. (Id. at ¶ 168.) Accordingly, Plaintiff concluded that HMR's purported “reviews” were actually commercial advertising and promotion that “materially misrepresented the nature, characteristics, and qualities” of Plaintiff's products, while failing to disclose the close affiliation with its competitor. (Id. at ¶¶ 222-23.)

         On February 27, 2017, Plaintiff requested an ex parte Temporary Restraining Order to prohibit Defendants from posting false or misleading statements regarding its products. (Dkt. No. 8.) The court originally denied Plaintiff's motion for ex parte relief, holding that the Plaintiff had “failed to meet its burden to show what efforts ha[d] been made to provide notice, why notice should not be required in this case, and whether immediate irreparable injury [would] result before the adverse party [could] be heard in opposition.” (Dkt. No. 13.) Following entry of that Order, Plaintiff's attorney submitted an additional declaration outlining multiple efforts made to notify Defendants of the case, including indications that Defendants had received actual notice and that Defendants appeared to be avoiding service of process. (Dkt. No. 14.) Based on this showing, along with Plaintiff's evidence of a strong showing of an affiliation between Defendants and substantial likelihood of success on the merits, the court entered Plaintiff's requested Temporary Restraining Order on March 2, 2017. (Dkt. No. 16.)

         The following day, on March 3, 2017, Plaintiff filed a Motion for Order to Show Cause Why Defendants Should Not Be Held in Contempt. (Dkt. No. 17.) In that Motion, Plaintiff argued that Defendants had failed to comply with the Temporary Restraining Order and had, instead, posted an inflammatory article about the lawsuit on the HMR website. (Id.) Defendants opposed the Motion and filed Motions to Dissolve the T.R.O. on March 9, 2017. (Dkt. Nos. 28, 36.) In support of their Motions, Defendants submitted two Declarations, the Declaration of Marc Werner (Dkt. No. 31) and the Declaration of Ryan Monahan. (Dkt. No. 30.)

         In his Declaration, Marc Werner, CEO of GhostBed (“Werner”), stated that “GhostBed does not have any affiliation whatsoever with co-defendants Honest Reviews LLC or Mr. Monahan.” (Dkt. No. 31 at ¶ 6.) Werner stated that GhostBed does not own, operate, direct, control or contribute to and that GhostBed “did not, and does not, remunerate Mr. Monahan or Honest Reviews LLC in any way for anything they do in connection with the website.” (Id. at ¶ 4-7.) Werner affirmed that “Mr. Monahan is not, and has never been, an employee, director, or officer of GhostBed, ” (Id. at ¶ 11, ) and that when Monahan identified himself on Twitter and LinkedIn as “Chief Brand Officer” of GhostBed, he did so “mistakenly.” (Id. at ¶ 14.) Werner further stated that Monahan is “not a member of GhostBed's marketing department or any other GhostBed department” and does not have an office, phone extension, or email address with GhostBed. (Id. at ¶¶ 15-19.) Werner stated that Monahan has “no monetary interest in the success of GhostBed” and “receives no compensation either directly or indirectly from GhostBed for the content he publishes on” (Id. at ¶ 20.)

         Werner acknowledged GhostBed's connection with Monahan in only one paragraph, stating that GhostBed uses Achieve Marketing for branding and marketing consultation services and that “[i]n the past, Achieve used another entity, Social Media Sharks, to consult on online presence issues for its clients, including GhostBed.” (Id. at ¶ 12.) Werner acknowledged that Social Media Sharks is associated with Monahan, but did not acknowledge any current relationship between GhostBed and Social Media Sharks or GhostBed and Monahan. (Id.)

         Monahan's Declaration similarly disavowed any significant business relationship between GhostBed and Monahan. Monahan stated that he is the sole member and president of Honest Reviews, LLC, which operates, and the founder, co-owner, and CEO of Social Media Sharks, a Florida marketing company. (Dkt. No. 30 at ¶¶ 2-3.) Monahan stated that “Defendant GhostBed currently contracts with Achieve Agency to perform social media marketing. Achieve Agency in turn engages Social Media Sharks to provide a portion of those services. Social Media Sharks provides similar services to over twenty-five other companies.” (Id. at ¶ 6.) Although Monahan admitted that he identified himself as Chief Brand Officer of GhostBed on LinkedIn, Twitter, and at a conference in September 2016, he stated that he did so without GhostBed's knowledge and that GhostBed “scolded [him] for doing so, and insisted that [he] stop.” (Id. at ¶¶ 7-8.) Monahan also stated that he has never had an office or phone extension with GhostBed. (Id. at ¶ 9.)

         Monahan similarly disavowed a financial relationship between the Honest Mattress Reviews website and GhostBed. He stated that the website has a single source of income- Google Adsense-and that Honest Reviews, LLC has never received any consideration from GhostBed, nor has any company, person, or product had any influence over reviews on the HMR website. (Id. at ¶¶ 11-13.)

         The court held a hearing on the Motions regarding the Temporary Restraining Order on March 14, 2017. At the hearing, counsel for Defendants reiterated the content of the Declarations submitted by their clients. Mr. Randazza, counsel for Monahan, strongly argued that Monahan was an independent journalist entitled to full protection under the First Amendment. Mr. Randazza repeatedly referred to Monahan as a “consumer journalist” and “consumer reporter” (March 14, 2017 Hearing Transcript at 44: 14-15, 23), even asserting that the court did not have authority to find otherwise. (Id. at 46-47.) He referred to the HMR site as a “consumer journalist publication just like Consumer Reports[.]” (Id. at 44: 15-16.) With respect to the allegation that Monahan was, in fact, closely affiliated with GhostBed, Mr. Randazza stated: “if we believe this entire conspiracy that this whole thing was cooked up back in October to be a shadow marketing campaign for GhostBed, that would require a degree of creativity and just a degree of plotting that even Alexander Dumas could not have imagined when he wrote the Count of Monte Cristo” and stated that “these fantasies are probably best used in fiction.” (Id. at 46:1-6, 8-11.) Mr. Randazza's coy acknowledgement of a relationship between Monahan and GhostBed was only in passing: “we have a contractor who is a contractor to a contractor and we have no desire to hide that relationship.” (Id. at 49: 4-6.) Mr. Randazza referred to the alleged close relationship between Monahan and GhostBed as “a very convoluted conspiracy theory that just does not make any sense.” (Id. at 52: 16-18.)

         Counsel for GhostBed, Ms. Yost, similarly indicated that no relevant business relationship existed between Monahan and GhostBed. Ms. Yost referred the court to Werner's Declaration testimony that “GhostBed does not compensate the website owner, which is Honest Reviews, or Mr. Monahan in connection with that website.” (Id. at 56: 4-6.) Ms. Yost further emphasized: “Neither Honest Reviews nor Mr. Monahan have been compensated by GhostBed to produce this website or any of the content on it. GhostBed has declared under the pains and penalties of perjury that it had absolutely nothing to do with the posts before or after the T.R.O. was entered.” (Id. at 56: 14-18.) Ms. Yost acknowledged an “attenuated” relationship between Monahan and GhostBed, stating that “Monahan is a marketing consultant and he works for many, many organizations and clients …, including GhostBed[.]” (Id. at 57: 3-4.) However, Ms. Yost argued that GhostBed was no different from any of Monahan's other marketing clients and that “two sworn declarations … say that there is no money trail between GhostBed and the website where Purple's harm is happening.” (Id. at 57: 19-24; 61: 10-12.)

         Based on the strong representation from both Werner and Monahan and their lawyers' arguments regarding the absence of a relevant, current business relationship between them, the court ...

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