Dremak v. Iovate Health Sciences Group, Inc. et al, No. 3:2009cv01088 - Document 303 (S.D. Cal. 2014)
Court Description: ORDER Denying Iovate Defendants' Motion to Dismiss, Ordering More Definite Statement as to Claims Against Retailer Defendants, and Denying Retailer Defendants' Motion to Dismiss. The Iovate Defendants' motion is Denied without prejudic e. The Retailer Defendants' motion is also Denied because the Court orders Plaintiffs to file a more definite statement as detailed above. The Iovate Defendants shall file an Answer to the SAC within 20 days of the entry of this Order. Signed by Judge Barry Ted Moskowitz on 1/27/2014.(rlu)
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Dremak v. Iovate Health Sciences Group, Inc. et al Doc. 303 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 CASE NO. 09md2087 BTM (KSC) IN RE HYDROXYCUT MARKETING AND SALES PRACTICES LITIGATION 14 ____________________________ 15 ANDREW DREMAK, on Behalf of Himself, All Others Similarly Situated and the General Public, 16 17 18 19 20 21 CASE NO. 09cv1088 BTM(KSC) ORDER DENYING IOVATE DEFENDANTS’ MOTION TO DISMISS, ORDERING MORE DEFINITE STATEMENT AS TO CLAIMS AGAINST RETAILER DEFENDANTS, AND DENYING RETAILER DEFENDANTS’ MOTION TO DISMISS Plaintiff, v. IOVATE HEALTH SCIENCES GROUP, INC., et al., Defendants. 22 23 The Iovate Defendants (Iovate Health Sciences, Inc., Iovate Health 24 Sciences U.S.A., Inc., and Kerr Investment Holding Corp.) have filed a motion to 25 dismiss Count I, in part, and Counts VII and IX, in their entirety from Plaintiffs’ 26 Second Consolidated Amended Class Action Complaint (“SAC”). The Retailer 27 Defendants (GNC Corporation, Wal-Mart Stores, Inc., Walgreens Company, CVS 28 Caremark Corp., Vitamin Shoppe Industries, Inc., NBTY, Inc., BJ’s Wholesale 1 09md2087 Dockets.Justia.com 1 Club, Inc., Kmart Corporation, and Rite Aid Corporation) have filed a separate 2 motion to dismiss Counts I-XV and Count XVII of the SAC. For the reasons 3 discussed above, the Court DENIES the Iovate Defendants’ motion to dismiss 4 and the Retailer Defendants’ motion to dismiss and orders Plaintiffs to file a more 5 definite statement as to the Retailer Defendants. 6 I. PROCEDURAL BACKGROUND 7 8 On December 22, 2009, the First Consolidated Amended Class action 9 Complaint (“FAC”) was filed in this multi-district litigation. Twenty named plaintiffs 10 asserted claims on behalf of themselves and a putative nationwide class of 11 persons who purchased Hydroxycut Products (14 specific Hydroxycut-branded 12 products). 13 In an order filed on May 31, 2011, the Court dismissed Plaintiffs’ consumer 14 protection, express warranty, and unjust enrichment claims against the Iovate 15 Defendants and Retailer Defendants. The Court held that Plaintiffs had failed to 16 satisfy Rule 9(b)’s heightened pleading standard because the FAC was vague as 17 to what representations each plaintiff relied on and whether each plaintiff actually 18 saw advertising claims before purchasing the Hydroxycut Product. 19 On August 8, 2011, Plaintiffs filed the SAC. In the SAC, twenty plaintiffs 20 bring the following claims against "Defendants," which include the "Manufacturer 21 Defendants" as well as the "Retailer Defendants": (I) violations of 41 states' 22 consumer protection statutes; (II) violations of Arizona's Consumer Fraud Act; (III) 23 violations of California's Consumer Legal Remedies Act; (IV) violations of 24 California's Business and Professions Code § 17200, et seq.; (V) violations of 25 Florida's Deceptive and Unfair Trade Practices Act; (VI) violations of Florida's 26 Statutory False Advertising Law; (VII) violations of Georgia's Fair Business 27 Practices Act; (VIII) violations of Illinois' Consumer Fraud Act; (IX) violations of 28 Louisiana's Unfair Trade Practices and Consumer Protection Law; (X) violations 2 09md2087 1 of New Jersey's Consumer Fraud Act; (XI) violations of New York's General 2 Business Law, § 349; (XII) violations of Pennsylvania's Unfair Trade Practices 3 and Consumer Protection Law; (XIII) violations of Texas's Deceptive Trade 4 Practices-Consumer Protection Act; (XIV) violations of West Virginia's Consumer 5 Credit and Protection Act; (XV) Breach of Express Warranty under 49 state 6 statutes; (XVI) Breach of Implied Warranty under 49 state statutes; and (XVII) 7 Unjust Enrichment. 8 In March, 2012, the Iovate Defendants and Retailer Defendants filed their 9 respective motions to dismiss. On July 13, 2012, the motions were denied 10 without prejudice due to a tentative settlement that had been reached among the 11 parties. 12 On November 19, 2013, the Court entered an order denying final approval 13 of the Class Action Settlement. In light of the Court’s ruling, the parties wished 14 to proceed with the motions to dismiss the SAC. Therefore, the Court deemed 15 the motions re-filed and reset the motions for hearing. 16 On January 2, 2014, the Court heard oral argument on the motions. 17 18 19 20 21 22 23 24 II. DISCUSSION A. Iovate Defendants’ Motion to Dismiss The Iovate Defendants move to Dismiss Count I in part, and Counts VII and IX in their entirety on the ground that the consumer protection laws of Georgia (Ga. Code Ann. § 10-1-399(a)), Louisiana (LSA-RS 51:1409.A), Montana (Mont. Code Ann. § 30-14-133(a)), South Carolina (S.C. Code Ann. § 39-5-140(a)), and Tennessee (Tenn. Code Ann. § 47-18-109(g)), do not allow class actions.1 As 25 26 27 28 1 The Iovate Defendants’ moving papers relied on the laws of Iowa, Mississippi, Alabama, and Virginia as well. However, the Iovate Defendants subsequently abandoned their argument regarding Plaintiffs Virginia claims. As for Iowa, Mississippi, and Alabama, Plaintiffs’ counsel pointed out at oral argument that Count I actually does not include these states. 3 09md2087 1 discussed below, the Court denies the Iovate Defendants’ motion to dismiss 2 because the Court concludes that the claims are governed by Federal Rule of 3 Civil Procedure 23,which allows a class action to be maintained if certain 4 preconditions are met. 5 Relying on Justice Stevens’ concurring opinion in Shady Grove Orthopedic 6 Ass’n v. Allstate Ins. Co., 559 U.S. 393 (2010), the Iovate Defendants argue that 7 Rule 23 would not apply to the state claims at issue, because application of the 8 Rule would be outside the scope of the Rules Enabling Act, which provides that 9 rules of procedure “shall not abridge, enlarge, or modify a substantive right.” 28 10 U.S.C. § 2072(b). According to the Iovate Defendants, the state provisions 11 prohibiting class actions are found within the state consumer protection acts and 12 are therefore so intertwined with state rights or remedies that application of Rule 13 23 would violate the Rules Enabling Act. 14 The Iovate Defendants would have a strong argument if Justice Stevens’ 15 opinion were the controlling one. However, the Court does not believe this to be 16 the case. Many of the courts that hold that Justice Stevens’ concurring opinion 17 is the controlling opinion of Shady Grove rely on Marks v. United States, 430 U.S. 18 188, 193 (1977), where the Supreme Court explained, “[T]he holding of the Court 19 may be viewed as that position taken by those Members who concurred in the 20 judgments on the narrowest grounds . . . .”2 But Marks has no application here. 21 As explained by the Ninth Circuit in Lair v. Bullock, 697 F.3d 1200, 1205 (9th Cir. 22 2012), the Marks standard should only be applied “where an opinion can be 23 24 25 26 27 28 2 See, e.g., Bearden v. Honeywell Int’l Inc., 2010 U.S. Dist. Lexis 83996, at * 28-30 (M.D. Tenn. Aug. 16, 2010) (applying Justice Stevens’ approach and finding that the classaction limitation contained in the Tennessee Consumer Protection Act is part of Tennessee’s framework of substantive rights and remedies); Tait v. BSH Home Appliances Corp., 2011 U.S. Dist. Lexis 54456, at * 23-24 (C.D. Cal. May 12, 2011) (concluding that Justice Stevens’ concurring opinion can properly be viewed as controlling and holding that plaintiffs may not bring class actions under the Tennessee Consumer Protection Act); Stalvey v. American Bank Holdings, Inc., 2013 WL 6019320, at *4 (D.S.C. Nov. 13, 2013) (treating Justice Stevens’ opinion as controlling and holding that prohibitions against class actions are substantive portions of the South Carolina law). 4 09md2087 1 meaningfully regarded as narrower than another and can represent a common 2 denominator of the Court’s reasoning.” 3 narrowest opinion is actually the logical subset of other, broader opinions, such 4 that it embodies a position implicitly approved by at least five Justices who 5 support the judgment.” Id. (internal quotation marks omitted). This standard “requires that the 6 In Shady Grove, the different opinions of the fractured Court took 7 contrasting approaches to determining whether a New York statute prohibiting 8 class actions in suits seeking penalties or statutory minimum damages precluded 9 a federal district court sitting in diversity from entertaining a class action under 10 Rule 23. Justice Scalia, writing for himself and Justices Roberts, Thomas and 11 Sotomayor, explained that in determining whether a rule is within the Rules 12 Enabling Act, the determinative inquiry is what the rule regulates: “If it governs 13 only ‘the manner and means’ by which the litigation and rights are enforced, it is 14 valid; if it alters ‘the rules of decision by which [the] court will adjudicate [those] 15 rights,’ it is not.” Id. at 407. According to this opinion, the effect the rule might 16 have on state substantive or procedural law is irrelevant - the focus must be on 17 the substantive or procedural nature of the federal rule. 18 In contrast, Justice Stevens took the position that courts must look to the 19 nature of the state law being displaced to determine whether the federal rule 20 violates the Rules Enabling Act. Justice Stevens reasoned that a federal rule 21 “cannot govern a particular case in which the rule would displace a state law that 22 is procedural in the ordinary sense of the term but is so intertwined with a state 23 right or remedy that it functions to define the scope of the state-created right.” Id. 24 at 423. 25 The dissent (Justices Ginsburg, Kennedy, Breyer, and Alito) found that 26 there was no unavoidable conflict between Rule 23 and the New York statute and 27 proceeded with an Erie analysis. The dissent emphasized that federal courts 28 should be sensitive to state interests and should not find a conflict if the federal 5 09md2087 1 rule can be rationally read to avoid any collision. The dissent took the view that 2 Rule 23 described a method of enforcing a claim for relief, whereas the New York 3 statute defined the dimensions of the claim itself. 4 The Court is not convinced that Justice Stevens’ opinion is the “logical 5 subset” of the plurality’s or that Stevens’ opinion represents a common 6 denominator. 7 of the splintered decision is its specific result. Lair, 697 F.3d at 1205. 8 Shady Grove does not provide the Court with much guidance. Where there is no such narrow opinion, the only binding aspect Thus, 9 Because the Ninth Circuit has not yet voiced an opinion on how to apply 10 Shady Grove, the Court looks to pre-Shady Grove Ninth Circuit cases analyzing 11 whether the application of federal rules in certain situations would violate the 12 Rules Enabling Act. As explained below, prior to Shady Grove, when determining 13 whether a federal rule ran afoul of the Rules Enabling Act, the Ninth Circuit 14 examined whether the rule that conflicted with the federal rule at issue was 15 substantive or procedural. 16 In In re Greene, 223 F.3d 1064 (9th Cir. 2000), the Ninth Circuit determined 17 that Bankruptcy Rule 9006(a), which governs the computation of periods of time 18 and provides for an enlargement of time when the last day of a time period falls 19 on a weekend, did not extend the 90-day period under 11 U.S.C. § 547(b), during 20 which time certain transfers are voidable by the trustee. In reaching its decision, 21 the Ninth Circuit followed Hanna v. Plumer, 380 U.S. 460 (1965), and focused its 22 inquiry on whether § 547(b) regulated procedure - the “judicial process for 23 enforcing rights and duties recognized by the substantive law and for justly 24 administering remedy and redress for disregard or infraction of them” - or 25 substantive rights. Greene, 223 F.3d at 1071-72 (quoting Hanna, 380 U.S. at 26 464). The Ninth Circuit concluded that the power of the trustee to avoid any 27 preferential transfer within 90 days before the filing date of the petition is a 28 substantive right independent of the process of enforcing litigants’ rights. Id. at 6 09md2087 1 1071. “[T]he statutory mandate that a transfer, in order to be avoidable, be made 2 ‘on or within 90 days before the filing date of the petition,’ is a ‘rule[ ] of decision’ 3 by which a court will adjudicate a bankruptcy trustee’s substantive right to avoid 4 a transfer.” Id. Accordingly, the Ninth Circuit held that the application of Rule 5 9006(a) to the 90-day preference period would violate the Rules Enabling Act. 6 In Freund v. Nycomed Amersham, 347 F.3d 752 (9th Cir. 2003), the 7 question before the court was whether Fed. R. Civ. P. 50, which governs when 8 a party can raise arguments in support of a motion for judgment as a matter of 9 law, trumps California law that the appealability of punitive damage awards is not 10 waivable. The Ninth Circuit concluded that the California no-waiver rule did not 11 create any substantive right: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 It does not add, subtract, or define any of the elements necessary to justify punitive damages; it merely establishes when and how those pre-existing substantive rules can be reviewed. Thus, in overriding the California no-waiver rule, Federal Rule 50 does not run afoul of the Rules Enabling Act, because its application ‘affects only the process of enforcing litigants' rights and not the rights themselves.’ Burlington N.R. Co. v. Woods, 480 U.S. 1, 8, 107 S.Ct. 967, 94 L.Ed.2d 1 (1987) . . . . Id. at 762. See also McCalla v. Royal MacCabees Life Ins. Co., 369 F.3d 1128 (9th Cir. 2004) (holding that Fed. R. Civ. P. 59(e), not Nevada law, governs when a litigant may make a postjudgment motion for prejudgment interest, because any Nevada rule that a party may make a postjudgment motion for prejudgment interest at any time, does not define the substantive entitlement to prejudgment interest, just “when and how” the entitlement to prejudgment interest can be reviewed). Whether the state statutory provisions that prohibit class actions for unfair or deceptive practices are “procedural” or “substantive,” is a difficult question with no clear answer. However, the Court tends to view these limitations on class actions as procedural in nature. In Shady Grove, Justice Scalia explained: 27 28 7 09md2087 3 A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of separate suits. And like traditional joinder, it leaves the parties’ legal rights and duties intact and the rules of decision unchanged. 4 Shady Grove, 559 U.S. at 408. Conversely, a rule barring class actions does not 5 prevent individuals who would otherwise be members of the class from bringing 6 their own separate suits or joining in a preexisting lawsuit. The substantive rights 7 of these individuals are not affected. The prohibitions against class actions only 8 affect “how the claims are processed.” Id. 9 prohibitions are within the individual state consumer protection acts, as opposed 1 2 10 The fact that the class action to free-standing rules, does not alter the Court’s conclusion. 11 Accordingly, application of Rule 23 to Plaintiffs’ claims does not run afoul 12 of the Rules Enabling Act. Rule 23 governs Plaintiffs’ claims, and Plaintiffs’ 13 claims are not subject to dismissal based on the state statutes prohibiting class 14 actions. Therefore, the Court DENIES the Iovate Defendants’ motion to dismiss. 15 However, the denial is without prejudice, and the Iovate Defendants may file a 16 new motion in the event that the Ninth Circuit addresses Shady Grove. 17 18 19 20 B. Retailer Defendants’ Motion to Dismiss 1. Rule 9(b) and Failure to Allege Facts Supporting Liability of Retailer Defendants for Representations Regarding Purchased Hydroxycut Products 21 22 The Retailer Defendants again move to dismiss Plaintiffs’ consumer 23 protection claims (Counts I-XIV) on the ground that Plaintiffs have failed to plead 24 fraud with particularity as required by Fed. R. Civ. P. 9(b). As discussed below, 25 the Court finds that Plaintiffs have not satisfied the pleading requirements of Rule 26 9(b). Furthermore, whether Rule 9(b) applies or not, most of the Plaintiffs fail to 27 state a claim under the various state consumer protection laws because Plaintiffs 28 do not allege facts that establish that the Retailer Defendants participated in or 8 09md2087 1 controlled representations that the Plaintiffs heard or saw before purchasing the 2 Hydroxycut Products in question. 3 Due to the manner in which the SAC is pled, the Court finds that Rule 9(b) 4 applies to all of Plaintiffs’ consumer protection claims. In Kearns, the Ninth 5 Circuit held that Rule 9(b) governed Kearns’s claims under the CLRA (Cal. Bus. 6 & Prof. Code §§ 1750-1784) and UCL (Cal. Bus. & Prof. Code §§ 17200-17210) 7 that Ford and its dealerships made misrepresentations regarding the safety and 8 reliability of its Certified Pre-Owned (“CPO”) vehicles to increase sales of the 9 vehicles. Although the Ninth Circuit recognized that fraud is not a necessary 10 element of a claim under the CLRA and UCL, the Ninth Circuit explained: “A 11 plaintiff may allege a unified course of fraudulent conduct and rely entirely on that 12 course of conduct as the basis of that claim. In that event, the claim is said to be 13 ‘grounded in fraud’ or to ‘sound in fraud,’ and the pleading . . . as a whole must 14 satisfy the particularity requirement of Rule 9(b).” Id. at 1125. The Ninth Circuit 15 explained that Kearns was alleging that Ford engaged in a fraudulent course of 16 conduct and concluded that Kearns had failed to allege with specificity the 17 circumstances surrounding the alleged misrepresentations resulting in his 18 purchase of a CPO vehicle. 19 Here, Plaintiffs are alleging a unified course of fraudulent conduct. Plaintiffs 20 paint the Retailer Defendants as “co-conspirators” with the Manufacturer 21 Defendants. (SCAC ¶ 86.) According to Plaintiffs, the Retailer Defendants 22 participated in the advertising and marketing process with Iovate, adopted 23 Iovate’s product representations as their own, and also made their own false and 24 deceptive statements about the products’ safety and efficacy. (Id.) Throughout 25 the complaint, Plaintiffs generally allege that the Retailer Defendants knew or 26 should have known about the falsity of their representations/advertisements and 27 intentionally engaged in deceiving consumers. (See, e.g., SAC ¶¶ 186,194, 28 207,243, 275). 9 09md2087 1 Applying Rule 9(b), the SAC falls short with respect to the Retailer 2 Defendants. For all but three of the plaintiffs,3 the SAC alleges that prior to 3 purchasing the products, the plaintiffs were exposed to Defendants’ television or 4 print advertisements (without specifying which defendant) or were exposed to 5 advertising in general, in addition to reading the product label in the store. (SAC 6 ¶¶ 9–28.) It is unclear whether these plaintiffs saw/heard any representations 7 made or adopted by the Retailer Defendants, as opposed to the Iovate 8 Defendants, and if so, which Retailer Defendant. As previously instructed by the 9 Court, Plaintiffs cannot lump all of the Retailer Defendants together. 10 Setting aside the heightened pleading requirements of Rule 9(b), Plaintiffs’ 11 failure to specify which advertisements Plaintiffs were exposed to prior to 12 purchase is fatal to their consumer protection claims because Plaintiffs must 13 allege that each Retailer Defendant made, adopted, or controlled representations 14 that Plaintiffs heard or saw prior to purchasing the products. Under California 15 law, a defendant’s liability for unfair business practices must be based on his 16 personal “participation in the unlawful practices” and “unbridled control” over the 17 18 19 20 21 22 23 24 25 26 27 28 3 Plaintiff Oritz claims that he "was exposed to and saw magazine and in-store advertisement at GNC and Vitamin World, all of which claimed the Product would increase energy and help with weight-loss." (SAC ¶ 18.) Plaintiff Torres claims that at GNC, he was exposed to in-store advertising reaffirming advertising he had seen before that the product was a safe and effective fat burner and weight-loss supplement. (SAC ¶ 25.) Plaintiff Walquer alleges that he was exposed to in-store advertising at Wal-Mart and Sam's Club, which claimed that the product was "one of the #1 products for weight loss" and was "approved by the FDA." (SAC ¶ 27.) Although these plaintiffs could have been more specific about the advertisements they saw, at least they connect the advertisement they saw/heard with a particular Retailer Defendant(s). The Court deems their allegations sufficient to state a consumer protection claim against the identified Retailer Defendants. In a footnote, Defendants argue that the alleged representations amount to no more than puffery. This argument is not persuasive because all of the advertisements allegedly indicated that the product was effective for burning fat or losing weight. Although the statement that Hydroxycut Regular Drink Packets are “one of the #1 products for weight loss,” is puffery with respect to the “#1" portion, the underlying claim of the statement is that the product actually helps weight loss. Representations that Hydroxycut helps weight loss are statements regarding a specific characteristic of a product and would be actionable. See Cook, Perkiss and Liehe, Inc v. Northern California Collection Serv. Inc., 911 F.2d 242, 246 (9th Cir. 1990). However, as discussed below, the claims of these three plaintiffs (and all the other plaintiffs) are subject to dismissal due to failure to adequately allege circumstances supporting an inference of knowledge. 10 09md2087 1 practices. Emery v. Visa Int’l Serv. Ass’n, 95 Cal. App.4th 952, 960 (2002) 2 (quoting People v. Toomey, 157 Cal. App. 3d 1, 15 (1984)). “The concept of 3 vicarious liability has no application to actions brought under the unfair business 4 practices act.” Toomey, 157 Cal. App. 3d at 14. 5 absent allegations of participation or control, defendants cannot be held 6 secondarily liable for the acts of third parties. In re Jamster Marketing Lit., 2009 7 WL 1456632, at * 9 (S.D. Cal. May 22, 2009). Similarly, under the CLRA, 8 Based on the Court’s research, other states similarly require some sort of 9 direct participation or control by a defendant to be held liable for deceptive 10 business practices. For example, in Zekman v. Direct American Marketers, Inc., 11 695 N.E.2d 853 (Ill. 1998), the Illinois Supreme Court explained that to be held 12 liable under the Illinois Consumer Fraud and Deceptive Business Practice Act 13 (815 ILCS 505/2, 2P), the defendant must have directly participated in the 14 deceptive acts. It is not enough that the defendant knowingly received the 15 benefits of a fraud. Id. at 859 (“Knowingly receiving the benefits of another’s 16 fraud, however, more closely resembles a form of secondary liability.”). Similarly, 17 in Qantel Bus. Systems, Inc. v. Custom Controls Co., 761 S.W.2d 302 18 (Tex.1988), the Supreme Court of Texas held that a defendant cannot be held 19 vicariously liable under the Texas Deceptive Trade Practices – Consumer 20 Protection Act, Tex. Bus. & Comm. Code §§ 17.41-63, just because the 21 defendant is “inextricably intertwined” with another who engaged in the wrongful 22 conduct. The court explained: 23 24 25 26 27 The DTPA does not attach derivative liability to its defendants based on innocent involvement in a business transaction. . . . The traditional common law theories of vicarious liability, such as agency or respondeat superior, provide an adequate basis for creating vicarious liability under the DTPA. The DTPA does not recognize or envision the expansion of common law theories of vicarious liability to include ‘inextricably intertwined,’ or the mere existence of a ‘relationship’ between parties. Id. at 305. 28 11 09md2087 1 Plaintiffs argue that the Retailer Defendants adopted Iovate’s 2 representations as their own and made their own false and deceptive statements. 3 Plaintiffs allege that the Retailer Defendants entered into agreements with Iovate 4 whereby the Retailer Defendants would promote Hydroxycut through their own 5 advertisements and/or would agree to give marketing support such as product 6 displays, in-store flyers, and window signage. (SAC ¶¶ 35-47.) 7 To the extent the Retailer Defendants issued their own advertisements, they 8 could be held liable for misrepresentations therein. Also, to the extent Retailer 9 Defendants displayed Hydroxycut signage or other promotional materials, other 10 than the product and product packaging itself, the Retailer Defendants arguably 11 controlled the advertising and adopted the statements made therein. However, 12 as already discussed, for the majority of the plaintiffs, the SAC does not specify 13 what advertisement they saw or where they saw it. Almost all of the plaintiffs 14 state that they read the label on the product packaging before purchase. 15 However, the Court is unaware of any authority for the proposition that under 16 state consumer protection laws, a retailer adopts statements made on product 17 packaging. Holding retailers liable for all statements made on products that they 18 sell would impose the type of secondary liability that has been rejected by courts. 19 Plaintiffs rely on Dorfman v. Nutramax Lab., Inc., 2013 WL 5353040 (S.D. 20 Cal. Sept. 2013), a case in which the plaintiff brought class action claims alleging 21 that defendant retailers Nutramax, Wal-Mart, and Rite-Aid marketed and sold the 22 “Cosamin” line of “Joint Health Supplements” through false and misleading 23 advertising. The complaint alleged that the defendant retailers repeated and 24 reinforced false and misleading joint health statements on their respective 25 websites. However, the plaintiff himself only claimed to have read and relied on 26 the product labels. The court ruled that contentions regarding differences in 27 product representations were best addressed at the class certification stage. Id. 28 at *7-8. With respect to whether plaintiff stated a UCL and CLRA claim against 12 09md2087 1 the retailer defendants, the court found that allegations that Wal-Mart and Rite- 2 Aid participated in the dissemination and repetition of representations concerning 3 the efficacy of the Cosamin products, including making statements on their 4 websites, sufficiently demonstrated that they “participated in the unlawful 5 practices” with “unbridled control over the practices,” such that they may be 6 subjected to liability under the UCL and CLRA. Id. at *14. In this section of the 7 order, the court did not focus on the plaintiff’s lack of exposure to the 8 representations that were disseminated and repeated by the retailer defendants. 9 To the extent that Dorfman can be read as holding that a retailer defendant 10 who disseminates or repeats deceptive statements can be held liable under the 11 UCL and CLRA for statements on product packaging that the retailer did not 12 control, the Court disagrees with Dorfman. If a retailer goes above and beyond 13 selling a product and displays additional promotional materials, the retailer 14 arguably can be held liable for those specific advertisements, but should not be 15 deemed to have adopted all representations made by the manufacturer about the 16 product. 17 Plaintiffs advance the theory that the Retailer Defendants are liable for 18 whatever representations were made by Iovate because they were aiders and 19 abettors of the deceptive advertising scheme. However, liability for aiding and 20 abetting a tort normally requires that the individual have actual knowledge of the 21 specific primary wrong that he is substantially assisting. See In re First Alliance 22 Mortgage Co., 471 F.3d 977, 993 (9th Cir. 2006). 23 (Second) of Torts § 876 (“For harm resulting to a third person from the tortious 24 conduct of another, one is subject to liability if he (a) does a tortious act in concert 25 with the other or pursuant to a common design with him, or (b) knows that the 26 other’s conduct constitutes a breach of duty and gives substantial assistance or 27 encouragement to the other so to conduct himself, or (c) gives substantial 28 assistance to the other in accomplishing a tortious result and his own conduct, 13 See also Restatement 09md2087 1 separately considered, constitutes a breach of duty to the third person.”). The 2 Court rejects Plaintiffs’ argument that the Retailer Defendants need not have 3 known about the tortious nature of Iovate’s representations to be held liable as 4 aider and abettors. 5 No facts are alleged supporting an inference that the Retailer Defendants 6 knew that representations made by Iovate regarding the safety and efficacy of the 7 products were false or deceptive. Therefore, there are insufficient allegations to 8 support aider and abettor liability on the part of the Retailer Defendants. 9 Because Plaintiffs (other than Ortiz, Torres, and Walquer) (1) do not allege 10 that prior to purchasing a Hydroxycut product, they saw/heard a specific 11 representation made, adopted, or controlled by a Retailer Defendant; and (2) do 12 not allege sufficient facts establishing aider and abettor liability for 13 representations made by Iovate, Plaintiffs do not state a claim under the various 14 state consumer protection laws against the Retailer Defendants. 15 16 2. Knowledge 17 Defendants move to dismiss Plaintiffs’ consumer protection claims under 18 California law (Counts III and IV), Florida law (Counts V and VI), Louisiana law 19 (Count IX), New Jersey law (Count X), and New York law (Count XI) on the 20 ground that these laws require that the plaintiff plead and prove knowledge of the 21 alleged defect.4 22 With the exception of Louisiana, it appears that knowledge is not a 23 requirement to maintain an action based on an affirmative representation under 24 the consumer protection laws at issue. In Wilson v. Hewlett-Packard Co., 668 25 F.3d 1136, 1145 (9th Cir. 2012), the Ninth Circuit stated, “Consequently, 26 27 28 4 In a footnote, Defendants contend that thirteen other states’ consumer protection statutes require knowledge and argue that these state claims should be dismissed from Count I for the same reasons. The Court does not consider this argument because it was not properly raised in the motion or sufficiently briefed. 14 09md2087 1 California federal courts have held that, under the CLRA, plaintiffs must 2 sufficiently allege that a defendant was aware of a defect at the time of sale to 3 survive a motion to dismiss.” However, Wilson concerned a fraudulent omission 4 – i.e., failure to disclose a defect – and its language about awareness of defect 5 arguably only applies to cases involving omission as opposed to active 6 misrepresentation. 7 A reason for not requiring knowledge in connection with active 8 misrepresentations under California law is that the CLRA was enacted after the 9 Legislature noted the difficulty consumers faced proving a fraud claim. See 10 Nelson v. Pearson Ford, Co., 186 Cal. App. 4th 983, 1021 (2010). The 11 Legislature intended that the CLRA “be liberally construed and applied to promote 12 its underlying purposes, which are to protect consumers against unfair and 13 deceptive business practices and to provide efficient and economical procedures 14 to secure such protection.” Id. 15 Knowledge of falsity clearly is not required to state a claim based on an 16 affirmative misrepresentation under the New Jersey Consumer Fraud Act. As 17 explained by the New Jersey Supreme Court, “One who makes an affirmative 18 misrepresentation is liable even in the absence of knowledge of the falsity of the 19 misrepresentation, negligence, or the intent to deceive.” Gennari v. Weichert Co. 20 Realtors, 691 A.2d 350, 365 (N.J. 1996). 21 Under New York and Florida law, knowledge is only necessary to obtain 22 specific types of relief. The weight of New York law is that proof of scienter is 23 only necessary for treble damages. Intent to defraud is not an element of a 24 statutory claim under N.Y. Gen. Bus. Law § 349. Small v. Lorillard Tobacco Co., 25 Inc., 720 N.E.2d 892 , 897 (N.Y. 1999). “Although it is not necessary under the 26 statute that a plaintiff establish the defendant's intent to defraud or mislead, proof 27 of scienter permits the court to treble the damages up to $1,000.” Oswego 28 Laborers’ Local 214 Pension Fund v. Marine Midland Bank, NA, 647 N.E.2d 741, 15 09md2087 1 745 (N.Y. 1995). See N.Y. Gen. Bus. Law § 349(h) (“The court may, in its 2 discretion, increase the award of damages to an amount not to exceed three 3 times the actual damages up to one thousand dollars, if the court finds the 4 defendant willfully or knowingly violated this section.”). 5 Under the Florida Deceptive and Unfair Trade Practices Act, “damages, 6 fees, or costs are not recoverable . . . against a retailer who has, in good faith, 7 engaged in the dissemination of claims of a manufacturer or wholesaler without 8 actual knowledge that it violated this part.” 9 However, under § 501.211(a), “anyone aggrieved by a violation of this part may 10 bring an action to obtain a declaratory judgment that an act or practice violates 11 this part and to enjoin a person who has violated, is violating, or is otherwise likely 12 to violate this part.” Thus, a plaintiff can bring an action for injunctive relief 13 against a retailer even if actual knowledge cannot be established. Fla. Stat. Ann. § 501.211(2). 14 In contrast, it appears that knowledge is required under Louisiana law. To 15 recover under the Louisiana Unfair Trade Practices Act, a plaintiff “must prove 16 some element of fraud, misrepresentation, deception or other unethical conduct 17 on defendant’s part.” Marshall v. Citicorp Mortgage, Inc., 601 So.2d 669, 670 18 (La. Ct. App. 1992). “Mere negligence is not sufficient to constitute an unfair 19 trade practice.” Id. at 671. In Target Construction, Inc. v. Baker Pile Driving & 20 Site Work, LLC, 2012 WL 5878855 (E.D. La. Nov. 20, 2012), the court held that 21 the plaintiff’s LUTPA claims failed because plaintiff had not adequately pled intent 22 to deceive as distinguished from mere mistake or negligence. 23 concerned with the intentional deception underlying a defendant’s acts, and 24 Baker has failed to allege such intentional deception on behalf of Target.” Id. at 25 *4. “LUTPA is 26 But whatever the knowledge requirements of individual states might be, 27 because Plaintiffs have chosen to plead a unified course of fraudulent conduct 28 involving the Iovate Defendants as well as the Retailer Defendants, Plaintiffs must 16 09md2087 1 allege facts supporting an inference of knowledge as to all of the state consumer 2 claims. 3 separately analyzed his claims under the unfairness prong of the UCL (which 4 does not require a showing of fraud). In rejecting this argument, the Ninth Circuit 5 explained: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 In Kearns, the plaintiff argued that the district court should have Kearns's TAC alleges a unified course of fraudulent conduct, namely that Ford Motor Company and its “co-conspirator” dealerships knowingly misrepresent to the public that CPO vehicles are safer and more reliable, with an intent to induce reliance and defraud consumers. Because Kearns's TAC alleges a unified fraudulent course of conduct, his claims against Ford are grounded in fraud. His entire complaint must therefore be pleaded with particularity. Thus, the TAC was properly dismissed and no error was committed by not separately analyzing his claims under the unfairness prong of the UCL. Kearns, 567 F.3d at 1127. Under the reasoning of Kearns, all of Plaintiffs’ consumer protection claims must satisfy the particularity requirements of Rule 9(b), regardless of whether certain state statutes may or may not require knowledge to be established. Plaintiffs argue that knowledge and intent may be averred generally. Although that is true, the circumstances of fraud must be stated with particularity. A plaintiff must allege sufficient facts to support an inference or render plausible that the defendant acted with the requisite intent. See, e.g., United States v. Corinthian Colleges, 655 F.3d 984, 997 (9th Cir. 2011) (explaining that although the complaint alleged that the defendant acted with scienter, it did not “clearly allege sufficient facts to support an inference or render plausible that Corinthian acted while knowing that its Compensation Program fell outside of the Safe Harbor Provision on which it was entitled to rely.”); City of Clinton v. Pilgrim’s Pride Corp., 632 F.3d 148, 154 (5th Cir. 2010) (“While Rule 9(b) provides that intent and knowledge ‘may be alleged generally,’ this is not license to base claims of fraud upon conclusory allegations.”); In re DDAVP Direct Purchaser Antitrust Lit., 585 F.3d 677, 695 (2d Cir. 2009) (“In a case involving multiple defendants, 28 17 09md2087 1 plaintiffs must plead circumstances providing a factual basis for scienter for each 2 defendant; guilt by association is impermissible.”) 3 Plaintiffs have not alleged facts that would give rise to an inference of 4 knowledge on the part of the Retailer Defendants that the advertisements 5 regarding the Hydroxycut Products’ safety and effectiveness were not true. The 6 allegations that the Retailer Defendants “knew or should have known” are 7 conclusory. Therefore, Plaintiffs consumer protection claims fail to state a claim 8 on the additional ground that Plaintiffs have not alleged sufficient facts supporting 9 an inference of knowledge. 10 11 3. Express Warranty and Unjust Enrichment 12 Plaintiffs’ failure to identify representations by the Retailer Defendants that 13 led to Plaintiffs’ purchase of Hydroxycut Products is fatal to their express warranty 14 and unjust enrichment claims. 15 Under U.C.C. § 2-313: 16 (1) Express warranties by the seller are created as follows: 17 (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. 18 19 20 21 22 23 24 25 26 27 28 (2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. 18 09md2087 1 (Emphasis added.) 2 Although reliance may not need to be proven to establish the formation of 3 an express warranty, at minimum, the buyer must have heard, seen, or received 4 the representations in order for them to form the basis of the bargain. Because 5 most of the Plaintiffs have not specified who made the representations that they 6 were exposed to prior to purchasing the products, their express warranty claims 7 fall short. 8 In the Court’s prior order, the Court dismissed the unjust enrichment claim 9 because it was premised on the consumer protection claims, which had not been 10 pled with particularity. For the same reasons, the Court concludes that Plaintiffs’ 11 instant unjust enrichment claim fails to state a claim. 12 13 4. Inability to Maintain Class Actions Under Certain State Statutes 14 Retailer Defendants move to dismiss Count I, in part, as well as Count VII 15 and Count IX on the same ground raised by the Iovate Defendants – i.e., that the 16 state consumer protection statutes prohibit class actions. As discussed in 17 Section II.A., supra, the Court concludes that Rule 23 governs Plaintiffs’ claims, 18 and that Plaintiffs’ claims are not subject to dismissal based on the state 19 prohibitions against class actions. 20 21 5. More Definite Statement 22 As discussed above, Plaintiffs’ SAC falls short in several respects. 23 However, in the interests of moving this case along, instead of dismissing 24 Plaintiff’s claims against the Retailer Defendants, the Court orders Plaintiffs to file 25 a more definite statement. In the definite statement, Plaintiffs should be clear as 26 to what theory of liability they are asserting against the Retailer Defendants and 27 should include sufficient factual allegations in support of such theory. If Plaintiffs 28 19 09md2087 1 allege a unified course of fraudulent conduct, Plaintiffs must keep in mind the 2 heightened pleading requirements of Rule 9(b). 3 4 The more definite statement should be in the form of a supplemental pleading and must be filed within 30 days of the entry of this Order. 5 Within 20 days of the filing of the more definite statement, Retailer 6 Defendants shall either file an answer or file a notice of intention to file a motion 7 to dismiss that briefly specifies the grounds for dismissal. Such grounds must 8 pertain to the deficiencies that are identified in this Order and are the reason for 9 the more definite statement- no new arguments will be entertained. 10 If Retailer Defendants file a notice of intention to file a motion to dismiss, 11 within 10 days of the filing of the notice, counsel for Plaintiffs and the Retailer 12 Defendants must meet and confer about the issues raised in the notice. If the 13 issues are not completely resolved, the parties shall, without delay, file a joint 14 statement that identifies the outstanding disputes. Upon receiving the joint 15 statement, the Court will schedule a status conference. 16 III. CONCLUSION 17 18 For the reasons discussed above, the Iovate Defendants’ motion is 19 DENIED without prejudice. The Retailer Defendants’ motion is also DENIED 20 because the Court orders Plaintiffs to file a more definite statement as detailed 21 above. The Iovate Defendants shall file an Answer to the SAC within 20 days 22 of the entry of this Order. 23 24 IT IS SO ORDERED. 25 DATED: January 27, 2014 26 27 BARRY TED MOSKOWITZ, Chief Judge United States District Court 28 20 09md2087
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