308 F. Supp. 3d 1026
D. Ariz.2018Background
- Plaintiffs (10 individuals) sued Theranos, Elizabeth Holmes, Ramesh Balwani, Walgreens Boots Alliance and Walgreen Arizona, alleging Theranos marketed unreliable blood-testing (Edison and non-Edison) and Walgreens partnered to sell/testing at in-store Wellness Centers.
- Plaintiffs allege Theranos’ Edison device was unready and that Theranos/Availably Walgreens concealed deficiencies, misrepresented reliability, and used fingerstick samples for R&D; many Theranos results later were voided and regulators disciplined Theranos.
- Arizona Attorney General obtained a consent decree with Theranos providing restitution checks to Arizona consumers; plaintiffs contend the decree did not extinguish all possible remedies (disgorgement, punitive).
- Plaintiffs’ Second Amended Consolidated Complaint asserts 14 causes of action (fraud under Arizona CFA and common law, negligence, negligent misrepresentation, battery/medical battery, breach of contract, unjust enrichment, aiding-and-abetting, RICO, and California statutory consumer claims). Defendants moved to dismiss under Rules 9(b) and 12(b)(6).
- The court granted in part and denied in part: many omission-based fraud claims, negligence, aiding-and-abetting, breach of contract, unjust enrichment, RICO (wire fraud), battery/medical battery (for Edison plaintiffs), and some negligent misrepresentation claims survive; several affirmative-misrepresentation and mail‑fraud/RICO claims were dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud by omission (CFA & common law) — duty to disclose | Plaintiffs: Walgreens and Theranos concealed material unreliability and had duties to disclose (exclusive knowledge, partial representations, created reliance). | Defendants: No duty to disclose; Walgreens had limited role (blood draws) and Theranos’ secrecy precluded Walgreens’ knowledge. | Court: Omission claims plausible; plaintiffs adequately alleged duties and Walgreens plausibly had knowledge; omissions survive. |
| Affirmative misrepresentation fraud (Rule 9(b) particularity) | Plaintiffs: Marketing/press releases/web statements/website content misrepresented reliability; class members relied on such statements. | Defendants: Allegations lump defendants together, lack who-saw-what specifics, many plaintiffs can’t tie particular ads or reliance to Walgreens/Theranos. | Court: Dismissed affirmative-misrep claims for several plaintiffs who failed Rule 9(b) or reliance pleading (some claims dismissed with prejudice); other plaintiffs (identified individuals) met particularity and survive. |
| Battery / medical battery (consent vitiated by fraud) | Edison plaintiffs: consent to fingerstick was induced by substantial mistake — true purpose was R&D, not legitimate testing. | Defendants: Consent was to the blood draw (therapeutic); nondisclosure of device readiness is negligence/informed-consent, not battery; no claim to limit consent to a particular analyzer. | Court: Edison plaintiffs plausibly plead battery and medical-battery against Theranos and Walgreens; claims survive. |
| RICO (mail and wire fraud; enterprise) | Plaintiffs: Defendants formed an association-in-fact to market unreliable tests via mail/wires, causing property/business injury. | Defendants: No mail fraud particularity; ordinary commercial relationship—not a RICO enterprise; no directed conduct or specific intent; injuries are only test fees (some recovered). | Court: Mail‑fraud predicate dismissed with prejudice; wire‑fraud-based RICO and enterprise adequately alleged and survive; plaintiffs plausibly alleged wire predicate acts, enterprise, intent and non-personal financial injuries. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (requirement of more than labels and conclusions)
- Zixiang Li v. Kerry, 710 F.3d 995 (9th Cir. 2013) (plausibility standard discussion)
- Eclectic Properties E., LLC v. Marcus & Millichap Co., 751 F.3d 990 (9th Cir. 2014) (consideration of alternative explanations and plausibility)
- In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869 (9th Cir. 2012) (complaint must provide more than legal conclusions)
- United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) (Rule 9(b) particularity: who, what, when, where, how of fraud)
- Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) (Rule 9(b) standards for fraud pleading)
- Starr v. Baca, 652 F.3d 1202 (9th Cir. 2011) (plaintiff must allege facts excluding obvious alternative explanations for liability)