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What a virile week we’re having. Tomorrow the blog will discuss a viagra product liability lawsuit. Today we reach back to a case from last March involving a battle between sellers of other male, um, performance products. Put all that together with last week’s post on cannabis and we are reminded of the scene from one of our favorite films, Dr. Strangelove, in which the pilot of a B-52 about to go down in the Soviet Union recites the contents of the survival kit. After listing the .45 semiautomatic pistol, money, gum, nylon stockings, antibiotics, tranquilizers, pep pills, sleeping pills, and prophylactics, the pilot (played by the great Slim Pickens, complete with cowboy hat and twangy-drawl), says, “Shoot, a guy could have a pretty good weekend in Vegas with this stuff.” Except he originally said “Dallas.” But the film came out shortly after JFK’s assassination, and nobody was talking about good times in Dallas. The reference was changed via dubbing to Vegas. Watch Slim’s lips the next time you see the movie.

In re Outlaw Laboratory LP Litig., 2019 U.S. Dist. LEXIS 41940 (S.D.Cal. March 14, 2019), is not a product liability case. It is actually about a turf war among peddlers of male enhancement products. Outlaw (based in Texas – Slim Pickens might’ve been a fitting spokesman) markets the subtly named Tristeel product line. But Outlaw is not alone. It has competitors. This lawsuit began when Outlaw’s attorneys sent letters to gas stations, liquor stores etc. urging them to cease selling Rhino pills. Why? According to the letters, the Rhino pills were “illicit” because they contained a prescription pharmaceutical regulated by the FDA. Also according to the letters, the stores’ sales of Rhino pills constituted violations of RICO and the Lanham Act. So stop what you’re doing, pay us some money, and let’s get on with our lives. There were follow-up demand letters, with the money demands decreasing over time.

The stores did not comply and, true to its word, Outlaw sued them. The core of the claims is that the Rhino pills were misrepresented to be natural and not requiring a prescription. The causes of action included the Lanham Act and the inevitable Cal. Business & Prof. Code section 17200. There was no claim under RICO so Outlaw was not completely true to its word. That will end up being a big issue.

The defendants counterclaimed, asserting that Outlaw’s demands and follow-on lawsuit was a shakedown scheme, and that it constituted a – ta da! – RICO violation. How was Outlaw’s lawsuit supposedly part of a RICO conspiracy? The stores alleged that Outlaw was picking on vulnerable victims – the stores were mostly small shops run by immigrants – and there was nothing remotely unlawful about selling the Rhino pills.

Suddenly Outlaw was playing defense. Outlaw sought to dismiss the counterclaims on the ground that the original complaint was protected by the Noerr-Pennington doctrine, which immunizes those who petition the government from liability for their petitioning conduct. It is protection derived from the First Amendment. Such protection would embrace not only the lawsuit, but also “petitioning-adjacent” activity such as the pre-suit demand letters. All fine and good. But Noerr-Pennington has its limits. It will not immunize “sham” litigation. If a lawsuit is not really a legitimate effort to petition the government but is, instead, an effort to interfere with someone’s business – and nobody in this case doubted that Outlaw wanted to interfere with the selling of the competitive male enhancement products – we are headed to sham territory. But we don’t get there unless the petitions (here, the lawsuit and the prefatory posturing) were not supported by a reasonable belief in their merit. That is an objective, not subjective, standard. Accordingly, the issue was whether Outlaw’s lawsuit and its threat of RICO,were objectively baseless.

The counterclaimants argued that Outlaw had no business invoking RICO, as some of the elements of RICO claims, including existence of predicate acts, were wholly absent. But anybody who has had the misfortune of dealing with the insanely elastic applications of RICO could predict the outcome of that argument. The Outlaw court cited the First Circuit’s Neurontin decision, and concluded that a plaintiff could conjure up a predicate act to support a RICO claim. Sigh. Of course.

But there was another weakness with Outlaw’s RICO theory. The communications by the stores that were at issue were not directed to Outlaw; they were directed to third parties (consumers). The SCOTUS Anza case held that there is no RICO proximate causation when the allegedly fraudulent communications were relied upon by a third party, not the plaintiff. Nice to know there are some limits to RICO. Sometimes.

Moreover, the Outlaw court was persuaded by the stores’ argument that Outlaw “could not have known of the existence of any of the facts it alleged in the demand letters, because those facts simply did not exist, and Outlaw knew they did not.” There was no basis to allege a conspiracy between the stores and the manufacturers of Rhino. There was nothing more than a standard wholesaler-retailer arrangement.

Outlaw argued that “there should be a higher standard of objective baselessness for claims of sham pre-litigation conduct.” One problem with that: there is no support for that proposition in the law.

The result is that the court denied Outlaw’s motion to dismiss the RICO counterclaim. How do we feel about that? First, we think RICO is wildly overused, so, just as a matter of reflex, we have qualms about courts permitting dodgy RICO claims to survive. But… Second, the objective baselessness of allegations is something we see in complaints against our clients all the time. The proportion of facts to fairy tales in complaints is vexingly small. Plaintiff lawyers seems to have no hesitation in alleging knowledge, intention, and bad faith when they nothing to support such allegations besides cynicism and a nose for a good yarn. Anytime a court claps down on such straying from the known facts, we have to applaud. Third, it is interesting how the plaintiff in Outlaw might end up paying a price for pre-suit threats. At a minimum, the Outlaw case offers a cautionary tale.