case about so called prescription pet food which is a pet food that the defendants tell the public can only be sold with a prescription and that's totally false there is no federal or state requirement for a prescription to be issued for any of these foods the pla challenge is conduct under basically two buckets of claims a series of state law consumer fraud claims and district court on a motion to dismiss made the same error that district courts in this circuit have repeatedly made and repeatedly been reversed on and dismissed these claims i'd like to emphasize two points as to each bucket of claims as to why that dismissal was improper the st and really most important is that this is a failure of the twelve b six  statement is deceptive whether the representations that are made are false and whether they cause people to infer other facts that are false are questions of fact for a jury there are not issues that the court is supposed to decide we know this from williams friedman the davidson case the rubinstein case over and over this court has said to the district court these questions of whether something is false or not are not questions to be decided on a motion to dismiss and yet here we are when the defendants represent to consumers through a variety of methods which are explained in detail in the complaint and you know it's funny after twenty the complaints keep getting longer and longer and longer and it seems like no matter how much detail we put thought i was i always asked what happened to the plane in short statement that really bad on it's a relic of history well we're we're well past that in this case defendants tell consumers that this food cannot be sold without a prescription and worse they use the  symbol both on some of the bags and with respect to every product at pet smart itself on the med card with the fake r x number on the signage in the store those terms prescription and  that something is a drug that's regulated by the government approved by the government manufactured in certain ways that are controlled by the government and therefore has benefits and costs more that's what those terms mean to consumers and you don't just need to take my view for it read e r two hundred and fifty eight which is the f d a is guidance on what are called medical foods medical foods are not drugs they're like if you get a feeding tube at the hospital that's a kind of medical food so they're regulated but they're not drugs and in the guidance on that product the f d a clearly states that you're not allowed to use our x on the medical foods because it's deceptive falsely implies it's a regula and it's not the same logic applies here they can't call this prescription if i go to the grocery store and i can't encounter a quaker oats by prescription because it lowers your cholesterol i'm sure my doctor would like me morrow but that's not approach me i want to ask you i think when i read the complaint or chunks of it that i thought i needed to read so when i read the allegations regarding the plaintiffs they don't say well i went to pet smart and i saw this dog and it said prescription dog food and i thought that's what max really needs description dog food you know that's right they went to their doctor instead they went to their doctor and their doctor says hey max my such and such food and then they go to the store and they see the food it's on a big shop and the shelf says prescription diets require medicare card right but the vet has already told them to look for that but with the misrepresentation does not need to be the sole cause of the conduct that's the important distinction so actually there are two things the vets telling them it's not independent it's part of the defendant's team that's their whole point otherwise you could all you could make any fake prescription product you want as long as some doctor recommended it the manufacturer would have no liability so it's not that's not an independent intervening cause which incidentally would be a defense and not something they would be able to show on a motion to dismiss but that has that neither here nor there is part of whether or not there was a false representation at the root that's part of it well your honor the representation is that a prescription is required to buy the food and that's false there is no legal anything it with the vet that made that be if they didn't see the food st with the r x or the prescription language on it are you saying it's the vet that made that misrepresentation i'm saying that between the vet and the purchase they saw the representation by the defendants because of that that's how they purchased it they go to the store they're asked where is your prescription on the shelf it says you need a prescription they go get the med card which looks like a prescription card with a fake r x number on it so the vet may have some some part in that plan and his part may be independent or it may be dependent depending on how the facts come out about what these guys tell the vets you know there's a lot of litigation this country right a prescription here ear here's what you're of but he's giving you a prescription because he knows that the defendant won't sell it to you without one because that's a requirement they impose not that the long post the consumer doesn't know that they just made up their own requirement to segment this market so people would pay more for this food and they all did it they all do it exactly the same way in connection in combination with each other and with with pet smart and banfield to enforce that and the other point the other point i want to make  allege that the reason why the vets get a prescription for is because they know that at care another is required you just you do said yeah do you did i don't know that those specific words are in the complaint i think that's a fair inference that should be drawn from the facts we alleged and were entitled to inferences in our favor on a twelve b six motion in the pet smart has admitted in pleadings which we quote in the complaint that the only requirement here is one that it has agreed with the manufacturers to impose but that's a huge inference to say that the vets know that the only way that they can get that food is is for them to write a prescription it that it won't be sold otherwise that's a that's a big if inference it could be that the vets think this is the best way for that food to be distributed among the pet population it could be but the vet is not in your in your hypothetical the vet is not telling the consumer the only way you can buy this food is with a prescription and that's what that's what you said you said that the that that's right the prescription because they know that's the only way that this food will be sold to t he pet owner but i did not say that they tell the consumer that the people at all but i'm saying that's an inference you ask us to draw the inference and i said that's a big difference for us to draw because there are other reasonable inferences that could also be drawn from that statement i understand there are so i would say two things one that's only one small segment of this case so if the court thinks that this case should be properly limited to people that got the food with prescriptions through banfield which is part of this combination and then back doesn't address the judge pius is concerned that there were bets who were not part of the banfield family who also wrote these prescription we're not saying it's illegal for the vet to tell you to buy a certain kind of food or even for the yet to use a prescription pad to do it what's illegal is to tell consumers and then actually do this we won't sell you the food without a prescription because that implies that that's a government requirement and that and that's the same as their crime and for drugs and comes with the same benefits and reasons for her cost as for drugs that's the issue in the case of the defendants have i think very skilfully sort of diverted attention to the vets but the vets are beside the point there it's not independent but even if it was i don't need to pro sole cause i just need to prove that it's important cause they didn't you refer to vets in your complaint so fortunately well why would it be diversionary for them to address it if you referred to it in your complaint because vets are only one part of a constellation of fraudulent conduct that's occurring here and they just want to focus on that and the other thing they want to focus on just to shift a little bit is this notion that the f d a has somehow prove their conduct through its enforcement guidelines because it they're flying under the f b i s radar that's nonsense the c p g does not authorize anything it expressly says this food is adulterated and misbranded and should not be sold they're not supposed to sell this food and what the c p g is saying is even though it's illegal we're not going to exercise we have limited resources we're not going to put our resources there as long as you do the following things that is not an authorization it looks like judge murphy has a question you said that the the getting back to this business about the bad you said that the district board did not get down in the weeds about that the district court did get into the weeds on reliance causation generally didn't generally but for example the district court did not analyze the fact that pet smart whatever's on anybody's representation that you need a prescription no i need their reliance upon that cause them damage now your honor i have to show under california law i have to show that the representation was material and then an inference of reliance arises and that's very clear und interpret in california law and california case law i do not snotted standard fraud claim you don't have to allege reliance at all i don't have to prove actual reliance all i have to prove is that a material misrepresentation was made and such that a reasonable consumer would be would rely and then there's an inference of reliance that arises now they might do it for damages you know when you get down to damages and you have to go back a little bit and so they relied in there and as a consequence they were damage right this was a case where my clients bought one dog bag of dog or cat food each that might be a problem because the vet said go buy this but it's not the case they've bought this food repeatedly for a long time from the same store where they're exposed to this and in fact some of them went to other stores and tried to buy it and were told they couldn't because they didn't have a prescription as part of the manufacture seems team so i'm not concerned about proving that but that's not why we're here your honor i don't have to prove my case today we know you have the police you have to prove allows the state's inference over alliance and i mean that's so tell me that your strongest case for the proposition that you don't have to specifically pleat reliance but you're able to rely on an inference of reliance what's your strongest case for real results in an inference of reliance which material fact that the food is only sold by prescription that is that mean that's the whole point of this the reason they're able to do it is the material fact there are trust claim there's two important points one there's clearly or a combination here because they do this together if they didn't do it together it wouldn't work with the common it what's the cut what's the combination this at a minimum you and you can you call it a strategic or whatever strategic arrangement yeah you know it's difficult words don't always fit the creativity of the defense when they make up these things but there is clearly an actual agreement we allege one actual game and between them and each manufacturer and pet smart and banfield there's a distribution agreement that pet smart enforce is when it restricts the sale of the food in the way that it's had has agreed to do and then we also infer that this is not an accident that all of these defendants are doing the exact same thing through pet smart and other that it was only in a small way if the agreement is predicated on that what i'm saying is that hill's engaged in some small market share of contact and then got together with mars and agreed to do it on a larger scale through mars's captive  bats in combination with pet smart and then about a year later we allege purina started doing the same thing so there's only about it two or three year gap there the other thing though is the distinction where me you have to show that it's not their economic and it's the could have done this you have to show that you have to negate the fact that they could have done this innocently and that is that there were good economic reasons for them to do the same thing no because it's not lawful so the law allows the law says it's not enough to allege parallel conduct it could be rational legal business behavior that's yet in re medical instruments says that kendall says that this is not rational legal business  reasons it violates the f d n c act because the food is misbranded and shouldn't be sold in the st place and it suits a consumer fraud so that the illegal nature of the of the conduct crew is the plus factor that we need to show them all acting together through the same distributor who's also engaging in the misconduct that's enough that is not you know just over the line in purina is economic best interest to to do the same thing without an agreement and that is because they can make more money selling something called prescription versus something called canine or something i have a can i think it would be a terrible day were this court to say that committing fraud and principle in any trust all right but the big parties large legal contract have some cover for small parties to do the same thing they're not various the suit but yes and there and those representations are also untrue and unlawful and that food is misbranded and should not be at pet smart they're not allowed to sell through mars's captive vets because they've been excluded by these defendants that's exactly the point that they could sell to not they could sell to regular vet i mean to underpin a bit unfortunately in this space apparently there are a lot of people who are violating the f d a and c x and selling misbranded and adulterated pet foods because consumers don't know better but that's not that doesn't make it legal rational conduct but just in that militate toward the principle that it's a business practice if other people who are not allowed to sell it at plant some are still doing it why doesn't that reflect the business practices opposed to a combination because of that because at the inception of this market you needed the two and then three big players to do it to create the market ok now the market's been established for more than a decade and now there are smaller players popping in but the market wouldn't exist if it wasn't falsely and artificially created by these different i was here with let's hear from the defendant  left to their own devices in evaluating product labels and advertising in this case however consumer protection laws are being invoked to challenge a practice that addresses exactly that problem for the products of issue here the manufacturers allow consumers to purchase the products only if the consumer st obtains authorization from the most knowledgeable expert available the veterinarian charged with national care of their consumers pet as the f recognized in its elaborate four year compliance policy guide process the longstanding requirement of prior veterinary authorization helps protect animal health and safety because special diet products can pose a unique risk to animals when administered by consumers who do not fully understand their pets condition or the proper use of the product there is a growing selling let's show a response to opposing counsel position then the guidance is just kind of  the importance of prior veterinary authorization in the marketing and sale of these products the c p g explicitly says there is a grave risk to pet health and safety if these products are sold or any growers any drugs in  product now any medicine in these products no not that i'm aware of is that when you see an r x isn't that where you generally think a reasonable consumer would think that these products are drug and or some sort of for drugs and medicine not a prescription and doctors prescribe things all the time doctors prescribe bed rest doctors prescribe exercise doctors prescribe a local host i don't think that's you know i don't think i've gotten a little prescription from the two prescription and are actually two words that appear i think are x appears more pet smart which isn't even sued in the consumer protection claims right that's how it's not understand it so that's a huge problem for them on the r x and bill but looking at the words prescription there's two separate points here they're saying it's not just about prescription they're saying it's illegal to require prior veterinary authorization that is the graben of their complaint and there is nothing deceptive about that basic point to require an expert to sign off on the use of the product is literally your honour's literally the opposite of deception it's giving the consumer knowledge requiring the consumer to have knowledge they wouldn't otherwise have but you didn't you never answered my question about whether or not you challenge the the products the f d a review the category of products that were labeled that's the st sentence of the c p g is addressing products labeled to treat diseases and then it goes through a process for years after four years of review and lays out eleven factors under which the f d a will exercise enforcement discretion and not pursue and not challenge the marketing of products that are used to treat animal diseases and says that it's not going to challenge them if those and all of these products satisfy all eleven of those requirements so these products and the argument here is not to be clear out of the argument here is not that this is these the lab deceptive because it's misbranded on the f t c a you won't see that in the opening page of their brief the argument is these products are deceptive because you are required to get veterinary authorization and to consult with a veterinarian before for consumption by the pet service bought a couple points on that st of all to the extent we're talking about is that's an authorization in general that can't possibly be deceptive to require expert consultation to the extent we're talking about the word prescription again that means by their own account of paragraph forty three of their complaint that just means doctor's orders that's their characterization of it but moreover then you get to what the district court said which is they have a huge reliance problem on the word prescription and all wrecks because this judge they saw the word prescription saw the arik symbol and purchased because they saw that and because they thought the word prescription means you know f d a approved you will find those allegations of paragraphs one hundred and one to one and seven what you do find is an allegation that pleads them completely out of court and that's the allegation that i think your honour's addressed in the earlier argument which is that they purchased the product because their veterinarian recommended them well that's that's not planned because it doesn't have to be prepared because there is an inference that can be drawn from the use of that phrase ology what's your response but i didn't i didn't quite i didn't quite understand are you on that because what i do understand is that the complaint says which is each of these plaintiffs purchased the product because the veterinarians recommended it that's why the purchase was made there isn't an allegation as to any of the individual plaintiffs that they purchased the product that they got the recommendation from the with the prescription in hand and their mansion it up with a bag of dog food that has says prescription but some of the players purchase right from the veterinarian they say that they didn't go to anywhere and purchase it certainly in their initial purchase i think there are a couple that though they did say they wanted to come yes yes they were i did say they went to get smart and and here's what's missing from the allegation is required under rule nine b under these circumstances given what they do allege about the veterinarian recommendation what they would need to allege to establish c l is this court in davidson said they have to allege that they would not have purchased the product if they'd known the the so called truth the so called truth here is that these products were subject to a new drug approval process by the f d a their allegation that the veterinarian said this is necessary for your sick pet that's their allegation to establish that they relied on the idea that this was subject to a new drug approval process they would have to allege specific facts establishing that they were deceptive for the reasons you know there is no reliance for the reasons i've said and there's a rd point which is the council didn't address which is that they have failed to allege as required facts establishing that these products have a nother theory if you will district court correctly dismissed to the end i cross claim in this case a section one combination conspiracy that as we understand it was a conspiracy that somehow the defendant manufacturers of these pet foods in combination with some number of the retailers agreed that they all including a horizontal element amongst the different manufacturers that they would all somehow only market some number of these food with a prescription requirement the nearby charge higher prices there is actually there is no allegation of price fixing these there is no allegation well i think there are allegations in the complaint that they were that allowed them to charge a higher price because they did label a prescription that they claim that the effect of that somehow allows us to do it but there's no claim that we're not actually competing on price in the sale  him is that you are able to charge higher prices under the rubric of it being the prescription all right although we are supposedly competing on price with this alleged t understood how this conspiracy would work in the absence of a nd price fixing agreement amongst the parties to actually not compete on the price down because they also said all art it can't work if everybody is charging more th as your honour's sort of recognize and i think is judge chesney recognized it's a very very strange set of facts that they try to establish to get past and this court's you know subsequent interpretations of twamley in the kendall case  and vs vs and in musical instruments twamley is very very clear that conduct that is as consistent or as as explainable by unilateral conduct  parallel conduct even consciously parallel conduct by itself to what's the economic incentive for the people to be zero acting with seymour well here we don't even really have the parallel conduct hilles began doing this decades ago hills introduced a line of prescription pet food they say oh it wasn't really a big deal but then there were others who started doing the same thing right and and in seeing how that that was a successful line of products that it was doing well in the market they say because it was a threat to mars the products had done well was presumably taking away business and sales from the non prescription pet food products in response maher's introduces a competing line of products decades later they have no allegations about oh well we know because we got a former disgruntled employee we've got documents we have direct evidence that there was actually some of greenman i'm not even sure what it would be if that that mars knocked on hill's door and said we're coming in we're going to compete with you don't rat us out we won't rat you out i'm not sure what the agreement is but but mars decides to compete with hills in offering this this competing line of food and they've watched hills do this successfully for decades without any action taken by the f d a without anybody alleging that the practice was deceptive and with that with with this veterinary requirement that you have to get some sort of authorization to buy it at retail so mars enters in somewhere in the twenty million forty two thousand and five time period and does the exact same requirement this isn't some ways very similar to the the vertical these are vertical agreement i agree with pet smart i will sell you or give my product to you if you impose the veterinary requirement it's similar to the individual vertical agreements you all looked at in the musical instruments and i trust case in that case it was minimum advertised pricing policies with candidly a lot more specific factual context that might have suggested in agreement in that case the th circuit said you know the fact that these individual vertical agreements were established at different points of time really undermines the notion that there was some horizontal agreement amongst all of them to do the same thing respectfully i would say the are even more dramatic than that in that case they they negate any sort of inference of horizontal conspiracy even more there but we have even more here because the other arguments the other sort of plus factors whether you call them that or not that they rely on can't possibly provide any reasonable inference of a horizontal agreement they say well gee this is this was so clearly unlawful conduct why would why would mars do this unilaterally as i think  your honor said it would make no unilateral economic sense for mars to enter this market in response to hills unless there was somehow a proceeding agreement well you know respectfully judge chesney had it absolutely right to reject that inference those had been doing it successfully on their own for decades they didn't need an agreement from anybody to make this rational and as as your honor pointed out we've got three new companies that have come in to the market doing supposedly the exact same thing and they're not part of the conspiracy well they say well but that we've created the umbrella why is the umbrella that suppose the exists today for these new companies why isn't that the same umbrella that existed for mars or the same umbrella that existed for purina years ago when they decided to come in and try to compete with these products that again nobody has ever until this case sued or taken action to suggest that it's that it's a deceptive arse it's so on law so unlawful that it would make sense to do when when when looking at whether conduct is economically so irrational that it it must suggest it can only be explained a conspiracy i believe this court in the news of the interment case described it as conduct that is so perilous in the absence of advance agreement that no reasonable firm would make the challenge without the agreement would engage in the conduct that the mere launching and responding with more competition in a line of goods i respectfully suggest does not does not make does not make that the other arguments that they make about sort of plausible plus factors whether it was responding to the c p g through a a trade association that is that is common conduct reaffirming our position sort of telling the f d a here's our position on this conduct that that doesn't push the needle to suggest that a decade before there was that there was any sort of a conspiracy and last i would suggest that the fact that these other new manufacturers have with very small market shares having gotten uptake at a pet smart that obviously can be explained by any number of reasons the fact that every coke every cola manufacturer doesn't get into safeway doesn't mean that pepsi and coke  question he didn't deny the food is adulterated because it is and if you read the c p g it to seventy nine and to eighty of the record it does not say the f d a agreed not to challenge their products that's false it says they are quote less likely to initiate in enforcement action that is nowhere near authorization or saying they won't challenge it that's just nonsense this is food they're not supposed to be selling it this way in the st place the fact they're flying under the f d a is radar does not make it legal and that is also a distinction between this case and in re musical instruments the conduct in that case was wholly legal there was no allegation that the vertical agreements were in any way independently illegal they are here that's the difference the last point i'd like to make on the any trust claim is the question is asked well why didn't mars fall under the umbrella that hills had created the big box stores the difference it's the combination of pet smart with eighty plus percent of its stores having a vet embedded in it that fundamentally changes this market from one where you go to small veterinarians and might buy a bag of dog food so one where the dog food the prescription food is competing at a higher price point with non prescription food in the big box stores that's a fundamentally different that they created through their conduct and that's the council what is your response to opposing counsel's position that you know argument regarding the higher price is not persuasive because you didn't assert price fixing expensive class of dog food through this market manipulation and proper conduct that is a form of price fixing that creates an stabilizes a higher bracket a higher echelon of prices the fact that they compete with each other in that higher echelon does not mean it's not price fixing because what they're not doing is competing with the non prescription food for price they're charging three dollars to five dollars times more than the non prescription food and you know the sherman act prohibits any kind of market manipulation that harms the consumer it doesn't specifically require that they all agree the exact same price in order for their conduct to be illegal so your owners we would ask that ok reverse thank you all right thank you very much we appreciate your arguments a problem and the matter submitted at this