654 F. App'x 358
9th Cir.2016Background
- Plaintiffs purchased nutritional supplements containing Testofen (a fenugreek extract) after defendants advertised that a Gencor clinical trial showed a "statistically significant" increase in free testosterone.
- Plaintiffs attached an expert (Jewell) report to the complaint alleging the trial’s results are not statistically significant once standard multiple-comparison corrections (e.g., Bonferroni) are applied.
- Defendants include Gencor (manufacturer of Testofen), wholesalers, GNC (retailer), and several corporate executives; plaintiffs sued on RICO, California and New York false-advertising/unfair competition statutes, CLRA, breach of express and implied warranties, negligent misrepresentation, common-law fraud, and restitution.
- The district court dismissed all claims with prejudice, relying in part on an outside source to conclude that failing a Bonferroni correction does not necessarily show lack of statistical significance and that other corrections might show significance.
- On appeal the Ninth Circuit reviewed whether the complaint plausibly pleaded falsity, reliance, and fraud with required particularity, and whether dismissal with prejudice was appropriate for each claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of allegations to show advertising falsity under CA/NY statutes | Plaintiffs: Jewell report shows trial did not produce statistically significant free-testosterone results; that suffices to plead falsity | Defendants: Private plaintiffs must produce evidence of falsity; mere lack of substantiation is not actionable | Reversed dismissal: allegations and expert report sufficiently state CA and NY statutory claims |
| CLRA notice requirement | Plaintiffs: notice was sent (allegedly) but not by a named plaintiff | Defendants: dismissal proper for failure to comply with 30-day notice-before-suit | Dismissal with prejudice was error; claim should be dismissed without prejudice until proper notice and cure period elapse (vacated as to prejudice) |
| RICO and common-law fraud (particularity and intent) | Plaintiffs: defendants manipulated study design/variables to mislead; intent can be inferred | Defendants: plaintiffs fail to plead specific intent or particularized fraud facts as required by Rule 9(b) | Affirmed dismissal with prejudice: allegations do not plausibly plead specific intent or fraudent scheme |
| Breach of warranty (reliance, causation, injury, and scope) | Plaintiffs: relied on representations and paid for products; privity not required for consumables | Defendants: plaintiffs failed to allege product failed to perform as warranted (only attack on statistical claim) | Dismissal with prejudice abused: warranty claims fail as pleaded but remand for amendment allowed (vacated as to prejudice) |
Key Cases Cited
- Burgert v. Lokelani Bernice Pauahi Bishop Tr., 200 F.3d 661 (9th Cir.) (court may affirm on any basis fairly supported by record)
- Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990 (9th Cir.) (elements and pleading standards for civil RICO and requirement to plead specific intent to defraud)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir.) (Rule 9(b) particularity applies to fraud-based claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (plausibility standard for pleading)
- Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir.) (Rule 9(b) particularity when fraud underlies other claims)