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Nov 30, 2023

How a legal brawl over 'male enhancement' pills led to a RICO verdict against this LA firm

Jurors sit in the jury box and the defense sits at the small table. REUTERS/Chip East (Reuters) - At the root of a bare-knuckled legal fight stands an almost ironically apt product: over-the-counter

Jurors sit in the jury box and the defense sits at the small table. REUTERS/Chip East

(Reuters) - At the root of a bare-knuckled legal fight stands an almost ironically apt product: over-the-counter pills for, ahem, male sexual enhancement.

But the issues raised in this San Diego federal court case go far beyond how dietary supplements with names like Rhino 12 Titanium and Libigrow XXXtreme are packaged and sold.

Rather, the battle between Tauler Smith, a Los Angeles firm founded by a pair of law school friends from Harvard (class of 2005), and Gaw Poe, a San Francisco firm founded by a pair of law school friends from Stanford (class of 2002), sheds light on a broader question: How far can lawyers go when threatening suit in demand letters before they themselves become vulnerable to charges of racketeering?

That’s what happened to Tauler Smith when a federal jury in San Diego last week found the firm liable for civil RICO violations.

"We obviously disagree with the verdict," said Tauler Smith's outside counsel Kevin Cole of KJC Law Group in Beverly Hills. “We intend to continue to litigate and anticipate motion practice in connection with the judgment.” Tauler Smith co-founder Robert Tauler declined comment.

The case began when Tauler Smith fired off demand letters from November 2017 to April 2018 to the owners of convenience and liquor stores, threatening suit for (irony alert) RICO violations, as well as Lanham Act false advertising claims.

Tauler Smith, which bills itself on its website as handling "high-stakes" commercial litigation for plaintiffs and defendants, alleged that the stores sold “illegal” sexual enhancement supplements that unfairly competed with legitimate sex pills made by the firm’s then-client, Outlaw Laboratories, in Texas.

“We estimate you are liable for more than $100,000 if we prosecute this matter,” one letter to a liquor store (submitted as a court exhibit) stated. But the retailer was also offered a “one-time” chance to settle for $9,765, provided the owners acted fast.

In some instances, Tauler Smith made good on its threat to sue, bringing cases against 61 store owners in the San Diego area – though those complaints, which were consolidated, did not include racketeering allegations.

Underlying the litigation against the stores is what strikes me as a legitimate concern. Many of the over-the-counter pills at issue come from amorphous overseas suppliers, and while they may claim to be natural dietary supplements, the Food and Drug Administration warns that some have been found to contain hidden drugs such as the active ingredients in Viagra and Cialis.

Still, how are convenience store owners supposed to know? Are they responsible for policing the ingredients of every product they stock, from Snickers bars to Spaghetti-Os?

U.S. District Judge Gonzalo Curiel in San Diego said no to that question and dismissed the claims.

Here's where Gaw Poe co-founder Mark Poe got involved.

In 2018, Poe got wind of the suits from an existing firm client, who connected him with some of the store owners.

Poe then sent a sharply-worded letter to Tauler Smith, which he shared with me. In the letter, Poe called the litigation threats a “shakedown” and warned the firm that it was exposing itself to RICO liability.

“You appear to have run a profitable racket over the last several months but the jig is up,” Poe wrote, adding that if Tauler Smith dismissed the cases and abandoned further litigation, “our firm will cease investigating these claims, and you can go on your way.”

Robert Tauler promptly replied, “Mark, Just because you don't understand something doesn't mean it's a bad thing. Do some research on our claims like a real lawyer and stop sending me stupid letters," according to screen shot of the email included in court papers.

And so the tone was set, with Curiel later noting the “strong animosity” between the lawyers.

“Ultimately, life is too short to be consumed by bitterness with a singular aim of make opposing counsel’s life miserable,” he advised.

Poe filed a racketeering countersuit against Outlaw Laboratories, adding Tauler Smith in 2020.

Outlaw, which has since ended its relationship with Tauler Smith, settled for $125,000 in 2021, leaving the firm as the only defendant. The company did not respond to a request for comment. Its new outside counsel, Sean Reagan in Houston, confirmed the settlement.

Poe in the countersuit argued it was “objectively baseless” for Tauler Smith in demand letters to threaten mom-and-pop store owners, many of whom spoke English as a second language, with RICO liability since they didn't engage in interstate commerce and there was no alleged mail or wire fraud, among other things.

Curiel agreed, writing that the RICO claims “have no basis in law.”

It’s not clear how much money the demand letters netted, but court papers point to evidence that the proceeds topped $1 million.

Tauler Smith in its pretrial brief noted that it was one of several firms retained by Outlaw to pursue claims against retailers, and said that its client called the shots.

The firm also argued that its demand letter statements about the stores’ RICO liability and damages were non-actionable legal opinions.

The jury wasn't convinced. It took just over three hours on March 16 to find the firm liable for racketeering.

The penalty--limited by statute to economic damages--was just $11,940 before trebling, plus legal fees, which Poe told me could top $1 million (though he also said he doesn't "expect a dime of it to be collectible.")

Poe doesn't see the verdict as "very impactful to the normal practice of law." But for a handful of firms that bring questionable cookie-cutter complaints, it could be a warning shot, he said.

Poe added, "I think the courts or the state bar should take a stronger hand in policing that kind of conduct."

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Jenna Greene writes about legal business and culture, taking a broad look at trends in the profession, faces behind the cases, and quirky courtroom dramas. A longtime chronicler of the legal industry and high-profile litigation, she lives in Northern California. Reach Greene at [email protected]