533 F.Supp.3d 858
N.D. Cal.2021Background
- This MDL challenges JUUL Labs, Inc. (JLI), Altria entities, and founding/director defendants for allegedly running a RICO enterprise that expanded nicotine addiction—especially among youth—through five schemes: fraudulent marketing, youth access, nicotine-content misrepresentations, flavor preservation, and a cover-up.
- The court previously dismissed substantive/conspiracy RICO claims (Oct. 2020) for failure to plead a distinct enterprise and insufficient director participation; plaintiffs filed the SACAC and SAPECs adding allegations.
- SACAC recharacterizes JLI as the RICO "enterprise" controlled by individuals (Monsees, Bowen, Pritzker, Huh, Valani) and Altria; it alleges detailed board-level control (an Executive Committee), granular involvement in marketing decisions, and Altria’s pre- and post-investment coordination to protect product sales.
- The court found the amended RICO allegations (including Altria’s role and the Other Director Defendants’ numeric/operative control of the board) plausible at the pleading stage and denied motions to dismiss RICO and related state-law claims against those defendants.
- The court held personal jurisdiction over the challenged director defendants based on their forum-related contacts and activity and sustained RICO conspiracy allegations.
- The court denied dismissal of most subclass/class-representative claims but dismissed without prejudice class claims under Delaware, District of Columbia, Idaho, and North Dakota law for lack of any class representative in those jurisdictions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| RICO enterprise distinctness (may JLI be the enterprise?) | JLI was the vehicle through which defendants pursued a separate self-interested scheme; naming JLI as enterprise cures prior defects. | A corporation that participates in fraud cannot simultaneously be treated as a passive enterprise; plaintiffs cannot treat JLI as both enterprise and fraudulent actor. | Amended allegations plausibly plead JLI as an enterprise at the pleading stage; distinctness/resolution can be revisited on a full record. |
| Altria’s joining and control of the enterprise | Altria shared data, coordinated marketing/shelf placement, used back channels pre-investment, and its Dec. 2018 investment enabled control to further the schemes. | Altria was a routine commercial partner providing services/infrastructure; its conduct was ordinary business, not knowing participation in fraud. | Allegations that Altria joined and played a directing role in several schemes are plausible; motion to dismiss denied. |
| Other Director Defendants’ personal participation | Plaintiffs allege numeric board control, an Executive Committee that ran day-to-day operations, detailed marketing-level interventions, and actions to preserve value for insiders. | Directors performed normal board duties; plaintiffs fail to identify specific board votes or discrete actionable acts beyond routine oversight. | Personal participation is plausibly pleaded (numerical control + granular involvement); claims against them survive. |
| Bowen’s RICO conduct and predicate acts | Bowen was intimately involved in product design, marketing and misrepresentations that furthered schemes. | Bowen did not personally commit requisite pattern of predicate acts to conduct the enterprise. | Bowen’s alleged involvement is sufficient; individual commission of two predicate acts not required for liability. |
| State-law claims (UCL, unjust enrichment, public nuisance, negligence, consumer statutes) | Directors personally authorized/directed unlawful acts; they received enrichment from Altria deal; government entities allege public health/property harms. | Claims are inadequately pleaded against directors; restitution/unjust enrichment unavailable where funds derived from third parties. | State-law claims plausibly pleaded against directors; restitution/enrichment issues reserved for full record. |
| Personal jurisdiction over Pritzker, Valani, Huh for out-of-state claims | Directors’ forum-related acts (board control, marketing decisions impacting California-based JLI) give rise to specific jurisdiction. | Directors are not primary participants directing forum conduct; lack sufficient forum contacts for nonresident claims. | Specific jurisdiction satisfied on the amended allegations; jurisdictional motions denied for the challenged complaints. |
| Class-representative standing for state subclasses | Plaintiffs committed to file underlying individual complaints for absent class reps; representativeness can be resolved at certification. | Defendants cite missed deadlines and prejudice; some state claims lack any class representative. | Court ordered plaintiffs to file missing underlying complaints; but dismissed without prejudice class claims under DE, DC, ID, and ND for lack of any class representative. |
Key Cases Cited
- Sever v. Alaska Pulp Corp., 978 F.2d 1529 (9th Cir. 1992) (officers may be the RICO "person" while corporation is the "enterprise").
- DeFalco v. Bernas, 244 F.3d 286 (2d Cir. 2001) (noncorporate entity can serve as enterprise used as passive instrument by defendants).
- Fitzgerald v. Chrysler Corp., 116 F.3d 225 (7th Cir. 1997) (rejecting enterprise theory where agents' illegal role is incidental to ordinary business relations).
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (corporation can be distinct enterprise while corporate employee is the RICO person).
- Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258 (3d Cir. 1995) (officers managing a corporation may be liable as persons conducting the enterprise under RICO).
- United States v. Stapleton, 293 F.3d 1111 (9th Cir. 2002) (pattern of racketeering can be established when some enterprise members commit predicate acts).
- Howard v. America Online Inc., 208 F.3d 741 (9th Cir. 2000) (RICO conspiracy requires agreement to commit or participation in predicate offenses).
- Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797 (9th Cir. 2004) (three-part specific jurisdiction test for purposeful direction and relation to forum contacts).
- Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718 (9th Cir. 2007) (overview of UCL prongs and consumer-protection frameworks).
- Kwikset Corp. v. Superior Ct., 51 Cal.4th 310 (Cal. 2011) (restitution principles under California UCL).