In Re: Juul Labs, Inc., Marketing, Sales Practices, and Products Liability Litigation
Case No. 19-md-02913-WHO
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
October 23, 2020
Dkt. Nos.: 626, 627, 628, 629, 632, 645, 647, 649, 738, 740, 748, 750, 751, 752/778, 754, 771, 772, 773/779.
Currently before me is the “first wave” of motions to dismiss in this massive multidistrict litigation, attacking claims asserted in the Amended Consolidated Class Action Complaint (“CAC“), the Amended Master Complaint (Personal Injury) (“PIC“), and in seven of the Government Entity Complaints (“PECs” or “Three Village/TVC“). The main moving defendants are JUUL Labs, Inc. (“JLI“), the Altria group of defendants1 (“Altria“), and the current and former JLI founders and directors (“Officer and Director Defendants“).2 These sets of defendants are named in all three sets of operative complaints. Other defendants who are named only in the PIC are the Retailer defendants,3 the Distributor defendants,4 and the E-Liquid defendants.5 These
The aim of this first round of motions to dismiss is to address potentially cross-cutting issues. The following motions have been filed and argued:
- JLI and the Retailer defendants’ motions to dismiss or stay given the Food and Drug Administration‘s primary jurisdiction over JLI‘s products;
- JLI and the Retailer defendants’ motions to dismiss claims as preempted by federal law;
- Defendants’ motions to dismiss the federal Racketeer Influenced and Corrupt Organizations Act (“RICO“) claims asserted in the CAC and PECs;
- Defendants’ motions to dismiss the California law claims asserted in the CAC;6 and
- Defendants’ motions to dismiss the public entity claims asserted in seven of the PECs.
In the main, plaintiffs’ claims may proceed. We are at the pleading stage, where plaintiffs’ allegations are taken as true and reasonable inferences from those allegations are drawn in their favor. In large part, plaintiffs’ claims are plausibly supported and state claims upon which relief can be granted. It would not be efficient to stay this case based on primary jurisdiction, given the uncertainty of when and how the FDA might address any related issues, and until it does so, preemption is not appropriate except regarding specific and narrow statements on product labels as I previously determined in Colgate v. JUUL Labs, Inc., 345 F. Supp. 3d 1178 (N.D. Cal. 2018) and Colgate v. JUUL Labs, Inc., 402 F. Supp. 3d 728, 745 (N.D. Cal. 2019).
That said, I am granting some defendants’ motions in a few respects, with leave to amend. Allegations concerning the distinctiveness of the RICO enterprise from the general business of JLI, and the role of Veratad in supporting the enterprise, are currently insufficient. More specific allegations are needed for the RICO claims against Altria, and for all of the claims asserted against directors Pritzker, Huh, and Valani. Plaintiffs will have 20 days from the date of this Order to amend any of the claims dismissed.
BACKGROUND
- Class Complaint ........................................................................................................................ 6
- Master Personal Injury Complaint ............................................................................................ 7
- Government Entity Complaints.............................................................................................. 8
- Motions to Stay or Dismiss Based on Primary Jurisdiction.................................................... 10
- Legal Standard.................................................................................................................. 11
- Primary Jurisdiction.......................................................................................................... 12
- Efficiency of a Stay....................................................................................................... 12
- Delay from a Stay ......................................................................................................... 16
- Other Factors................................................................................................................. 17
- Motions to Dismiss Based on Preemption .............................................................................. 18
- Legal Standard.................................................................................................................. 19
- Preemption .................................................................................................................... 19
- Statutory Scheme .......................................................................................................... 20
- Express Preemption .......................................................................................................... 22
- Product Liability ........................................................................................................... 22
- Product Design/Standards Claims................................................................................. 23
- Packaging and Labelling Claims................................................................................... 23
- Advertising Claims ....................................................................................................... 27
- Modified-Risk Claims................................................................................................... 28
- Retailer-Specific Preemption ........................................................................................ 29
- Implied Preemption .......................................................................................................... 30
- Legal Standard.................................................................................................................. 19
- Motions to Dismiss RICO Claims........................................................................................ 33
Legal Standards ................................................................................................................ 33 - RICO Allegations............................................................................................................. 35
- CAC .............................................................................................................................. 35
- Public Entity Complaints.............................................................................................. 38
- Enterprise.......................................................................................................................... 38
- Conducted Affairs of Enterprise....................................................................................... 46
- Bowen ........................................................................................................................... 47
- Monsees ........................................................................................................................ 51
- Other Director Defendants............................................................................................ 52
- Altria ............................................................................................................................. 55
- Predicate Acts and Pattern of Racketeering ..................................................................... 57
- Scheme to Defraud........................................................................................................ 58
- Intent ............................................................................................................................. 59
- Predicate Acts ............................................................................................................... 60
- Pattern ........................................................................................................................... 66
- Proximate Cause and Injury to Money or Property.............................................................. 67
- CAC .............................................................................................................................. 67
- PECs.............................................................................................................................. 70
- Altria ............................................................................................................................. 74
- Conspiracy ........................................................................................................................ 74
- Motions to Dismiss UCL/California claims......................................................................... 75
- Common Law Fraud – California Plaintiffs..................................................................... 77
- Affirmative Misrepresentations and Justifiable Reliance ............................................. 77
Omissions and Justifiable Reliance............................................................................... 80 - Damages........................................................................................................................ 85
- Common Law Fraud – California Plaintiffs..................................................................... 77
- Breach of Implied Warranty – California Plaintiffs......................................................... 85
- Privity with JLI ............................................................................................................. 85
- Non-Merchantability and Causation ............................................................................. 86
- UCL/FAL.......................................................................................................................... 87
- Stating a UCL Claim..................................................................................................... 87
- Standing ........................................................................................................................ 95
- Relief............................................................................................................................. 96
- CLRA................................................................................................................................ 99
- Unjust Enrichment.......................................................................................................... 100
- Other Claims/Subject Matter Jurisdiction for Putative Subclass Claims........................... 101
- Personal Jurisdiction over the Other Director Defendants............................................. 102
- Municipal Cost Recovery Rule....................................................................................... 103
- Public Nuisance ................................................................................................. 106
- JLI ............................................................................................................................... 107
- Altria ........................................................................................................................... 113
- Officer and Director Defendants................................................................................. 115
- Negligence ................................................................................................. 119
- JLI ............................................................................................................................... 119
- Altria ........................................................................................................................... 129
- Officer and Director Defendants................................................................................. 130
Proximate Causation....................................................................................................... 132 - JLI ............................................................................................................................... 132
- Altria ........................................................................................................................... 135
- Statutory Consumer Protection....................................................................................... 135
- New York Consumer Protection Law......................................................................... 136
- Florida Consumer Protection Law .............................................................................. 143
- Personal Jurisdiction .......................................................................................................... 146
- Specific Jurisdiction.................................................................................................... 147
BACKGROUND
I. CLASS COMPLAINT
The Amended Consolidated Class Action Complaint is the operative pleading for the consumer class action allegations in this case. Dkt. No. 679 (“CAC“). In the CAC, the plaintiffs allege hundreds of pages facts regarding JLI‘s and the Officer and Director Defendants’ intent to create and market a “blockbuster sequel” to combustible cigarettes. Their product, the JUUL e-cigarette device, was a new entry into the existing electronic nicotine delivery systems (“ENDS“) market. According to plaintiffs, the product was intentionally designed to avoid the “stigma” surrounding combustible cigarettes and capture not only existing combustible cigarette smokers and smokeless tobacco users who were addicted to nicotine, but also vastly expand the market by capturing and addicting individuals – specifically including youth users – who had not previously used tobacco or ENDS products. JLI and the Officer and Director Defendants allegedly achieved this by creating a highly addictive product that produced high “buzz” levels with lower throat harshness and discomfort than prior tobacco or existing ENDS products. Eventually with the assistance of Altria, JLI and the Officer and Director Defendants are alleged to have achieved not only market dominance in the ENDS market but also to have expanded the pipeline of new nicotine addicts through their three-pronged approach: (i) product design to maximize addiction;
Based on these themes, the CAC asserts the following causes of action on behalf of the “nationwide” class as well as the “California Subclass“: (1) Violation of the California Unfair Competition Law (
The CAC also alleges specific violations of state law for subclasses of consumers in the other 49 states and the District of Columbia arising under those jurisdictions’ consumer protection statutes, as well as common law claims of fraud, breach of the warranty of merchantability, and unjust enrichment. CAC ¶¶ 224-649.
II. MASTER PERSONAL INJURY COMPLAINT
The Amended Consolidated Master Complaint (Personal Injury) plus the Court-approved Short Form Complaint are the operative pleadings for the personal injury cases. Dkt. Nos. 677 (PIC), 405 (SFC). The essential facts with respect to JLI, Altria, and the Officer and Director Defendants’ conduct are materially similar to those alleged in the CAC. There are also additional allegations regarding the “prominent role” the Distributor and Retailer Defendants played in the “false and deceptive marketing campaign” and fraudulent scheme created by JLI and the Officer and Director Defendants (and eventually Altria) to expand the market of nicotine-addicted individuals through joint promotion campaigns targeting youth, failing to take adequate precautions to prevent youth use, and selling products that “neither disclosed the products’ nicotine content, nor any of its risks.” PIC ¶¶ 5, 526-527, 532-534, 543, 557-601. Plaintiffs allege that the E-Liquid Defendants manufactured and supplied “the ingredients and additives in E-Liquids including the E-Liquid” in the JUUL products. Id. ¶¶ 31-35. The E-Liquid Defendants and JLI allegedly “enticed” newcomers to nicotine with “kid-friendly” flavors without ensuring
Plaintiffs plead nineteen causes of action in the PIC: (1) Strict Liability – Design Defect, PIC ¶¶ 755-775; (2) Strict Liability – Failure to Warn, ¶¶ 776-794; (3) Strict Liability – Manufacturing Defect, ¶¶ 795-808; (4) Products Liability – Negligent Design, ¶¶ 809-828; (5) Products Liability – Negligent Failure to Warn, ¶¶ 829-846; (6) Product Liability – Negligent Manufacturing, ¶¶ 847-859; (7) Negligence and/or Gross Negligence, ¶¶ 860-881; (8) Negligent Failure to Recall/Retrofit, ¶¶ 882-894; (9) Negligent Misrepresentation, ¶¶ 895-909; (10) Fraud, ¶¶ 910-925; (11) Fraudulent Concealment, ¶¶ 926-945; (12) Conspiracy to Commit Fraud, ¶¶ 946-987; (13) Unjust Enrichment, ¶¶ 988-998; (14) Violation of Unfair Trade Practices/ Consumer Protection Law under identified state laws, ¶¶ 999-1012; (15) Breach of Express Warranty, ¶¶ 1013-1030; (16) Breach of an Implied Warranty of Merchantability, ¶¶ 1031-1047; (17) Wrongful Death, ¶¶ 1048-1054; (18) Survival Action, ¶¶ 1055-1061; and (19) Loss of Consortium, ¶¶ 1062-1068.7
There are a number of additional defendants identified in the underlying personal injury complaints and SFCs.8 Those defendants have not moved in this first round of motions to dismiss; their defenses and right to move to dismiss are expressly preserved for determination at a later date.
III. GOVERNMENT ENTITY COMPLAINTS
There are seven cases filed by government entities that, by agreement of the parties, are being tested during this first round of motions to dismiss. Those cases are County of Santa Cruz v. JUUL Labs, Inc., No. 20-cv-02261 (N.D. Cal.) (“Santa Cruz“), and seven school districts (collectively the “school districts“): Central Bucks School District, Bucks County v. JUUL Labs, Inc., No. 19-cv-08023 (N.D. Cal.) (“Central Bucks“); The School Board of Escambia County,
The same or materially similar allegations are made in each of the operative complaints. JLI and other defendants generally refer to the factual allegations in the Three Village Complaint (TVC), in addition to challenging some of the bellwether claims under specific state laws relevant to specific entities. The government entities allege that “JLI, the Management Defendants, and Altria worked together to implement their shared goal of growing a new market in the image of the combustible cigarette market through a multipronged strategy to: (1) create a highly addictive product that users would not associate with cigarettes and that would appeal to the lucrative youth market; (2) deceive the public, and especially young people, into thinking the product was a fun and safe alternative to cigarettes that would help smokers quit; (3) actively attract young users through targeted marketing, and (4) use a variety of tools, including false and deceptive statements to the public and regulators, to delay regulation of e-cigarettes.” TVC ¶ 55. Each of the defendants “played a critical role—at times overlapping and varying over time—in each of these strategies.” Id.
As a result of the youth e-cigarette crisis created by this misconduct, school districts and local governments were compelled to respond. The school districts spent significant and unexpected levels of time and resources to address the pervasiveness of youth e-cigarette use and had to divert resources and deploy new ones to combat the problem. See TVC ¶¶ 597–604 (educate about the dangers of youth e-cigarette use, including staff training and new counseling services); id. ¶¶ 605–06 (costs associated with discipline and suspensions related to incidents of e-cigarette use in schools, including additional legal expenses in connection with disciplinary hearings and costs for home-tutoring services to suspended students at risk of falling behind academically); id. ¶ 607 (monitoring bathrooms for pervasive e-cigarette use as well as installing
Local governments also seek to recover costs that they incurred when responding to the youth e-cigarette crisis. See Santa Cruz ¶¶ 601–622 (public health staff spent significant time and resources addressing youth e-cigarette use, including educational campaigns and buying ads to combat defendants’ misinformation); id. ¶¶ 610, 615 (responding to schools who requested assistance in dealing with increased youth e-cigarette use, including time and resources from local police departments; increased need for disciplinary alternatives, including trained addiction specialists, counselors, and social workers, as well as developing effective cessation methods targeted at youth); id. ¶¶ 612–13 (dealing with hazardous waste disposal in the county‘s landfills).
Based on these allegations, the seven government entity complaints at issue allege the following causes of action: (1) violations of RICO (
Together, these government entity complaints seek abatement, injunctive relief, equitable relief to fund prevention education and addiction treatment, actual and compensatory damages, punitive damages,9 statutory damages, attorneys’ fees and costs, and pre- and post-judgment interest.
DISCUSSION
I. MOTIONS TO STAY OR DISMISS BASED ON PRIMARY JURISDICTION
JLI moves to stay all proceedings in this MDL pending the Food and Drug Administration
Plaintiffs argue that efficiency and fairness weigh strongly against a stay where the FDA‘s “forward-looking” process will not consider or resolve the actual claims for damages, restitution, and abatement sought here under the claims of the CAC, PIC, and PECs. They dispute the length of time the FDA will take to determine JLI‘s PMTA and related issues. And they also contend that any overlap between issues in these proceedings and the going-forward issues that the FDA will resolve is speculative, but manageable if the need arises.
A. Legal Standard
“The primary jurisdiction doctrine allows courts to stay proceedings or to dismiss a
However, “[n]ot every case that implicates the expertise of federal agencies warrants invocation of primary jurisdiction. Rather, the doctrine is reserved for a ‘limited set of circumstances’ that ‘requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency.‘” Astiana v. Hain Celestial Group, Inc., 783 F.3d 753, 760 (9th Cir. 2015) (quoting Clark, 523 F.3d at 1114).
To determine whether to defer to an agency, the Ninth Circuit has traditionally examined the factors set forth in General Dynamics, and found that the doctrine applies in cases where there is: “(1) [a] need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Syntek, 307 F.3d at 781 (citing U.S. v. Gen. Dynamics Corp., 828 F.2d 1356, 1362 (9th Cir. 1987)). “[C]ourts must also consider whether invoking primary jurisdiction would needlessly delay the resolution of claims,” and under Ninth Circuit precedent, “‘efficiency’ is the ‘deciding factor’ in whether to invoke primary jurisdiction.” Astiana, 784 F.3d at 760 (quoting Rhoades v. Avon Prods., Inc., 504 F.3d 1151, 1165 (9th Cir. 2007)).
B. Primary Jurisdiction
1. Efficiency of a Stay
The primary dispute between the parties is whether the FDA‘s resolution of JLI‘s PMTA – drawing on the FDA‘s significant expertise in regulating nicotine containing products and related marketing/advertising – will impact the claims asserted in this MDL enough so that efficiency weighs significantly in favor of a stay. I conclude that efficiency weighs against a stay.
The FDA‘s consideration of the design and marketing of JLI‘s products as described in the
Without disclosure of the actual PMTA submitted by JLI, I am unable to verify the assertions about what is actually before the FDA concerning JLI‘s products and suggested labelling and marketing and what past JLI conduct (marketing or design elements) the FDA will consider. For purposes of this motion, I assume that the FDA will review some significant portion of the design and marketing elements that underlie plaintiffs’ claims. That assumption does not support a stay.
The heart of plaintiffs’ claims concerns JLI‘s past conduct that centers on intentional youth marketing or negligent knowledge but encouragement of youth use of its products, alleged conduct that JLI has voluntarily ceased or reduced.12 The design allegations – sleek, discrete devices designed with intent to appeal to youth – are relevant to plaintiffs’ claims about defendants’ intent to capture new nicotine users, but are not at the center of plaintiffs’ claims. Closer to the line are plaintiffs’ allegations regarding failures to warn or omissions about the amount of nicotine delivered as well as “smoother” delivery, leading to known or expected overuse. The FDA will undoubtedly consider these design and delivery elements in determining
Plaintiffs also point out, and defendants do not really dispute, that the FDA‘s ruling on the PMTA will not resolve the various personal injury claims and false, misleading, and unfair advertising claims based on JLI‘s and other defendants’ conduct up to now. The FDA will determine on a going-forward basis whether, and if so how, JLI‘s product may be sold, with respect to nicotine delivery, labeling and warnings. It will not determine whether JLI‘s and the other defendants’ past conduct (much of which has now allegedly ceased) – the allegations of intentional or negligent youth and tribal marketing, the misleading marketing, and the failure to disclose nicotine uptake of existing and prior product versions that are at the center of this MDL--was illegal and caused plaintiffs’ injury.
The myriad of legal issues and fact questions contained within this MDL, as well as the significant allegations based on conduct that JLI has admittedly or apparently ceased (and therefore will not be subject to FDA review in JLIs’ PMTA), differentiate this MDL from the Ninth Circuit and Northern District of California cases relied on by defendants where stays or dismissals in favor of primary jurisdiction were appropriate. The issues in this MDL proceeding are nowhere near as narrow or limited as in those cases, where the issue under agency consideration would directly impact the central claims. See, e.g., Kane v. Chobani, LLC, 645 Fed. Appx. 593, 594 (9th Cir. 2016) (unpublished) (determining that primary jurisdiction was appropriate for state law deception and mislabeling claims based on use of “natural” and “evaporated cane juice” that were made in alleged violation of FDA regulations); Astiana v. Hain Celestial Group, Inc., 783 F.3d 753, 761 (9th Cir. 2015) (primary jurisdiction appropriately invoked where FDA actively determining “what chemical compounds may be advertised as natural on cosmetic product labels“); Clark v. Time Warner Cable, 523 F.3d 1110, 1115 (9th Cir. 2008) (primary jurisdiction of FCC over question of whether a VoIP provider qualifies as a “telecommunications carrier” under Telecommunications Act of 1996); Syntek Semiconductor Co., Ltd. v. Microchip Tech. Inc., 307 F.3d 775, 782 (9th Cir. 2002) (“Referral under the doctrine
The FDA‘s analysis of JLI‘s PMTA will likely touch upon going-forward issues such as the injunctive and equitable relief to which plaintiffs may be entitled with respect to labelling, warnings, and the marketing and advertising of any products that are allowed to remain on the market. But I can address their impact when the FDA‘s decisions on the JLI PMTA become final. Similarly, I will address the preemptive effect of the FDA‘s decisions on JLI‘s PMTA or other rulings regarding how ENDS may be designed, labelled, or marketed, if and when they occur. That theoretical future possibility is not a sufficient reason to stay these proceedings.
Resolution of the PMTA will not be irrelevant to the determination of some of the issues in this MDL and could well impact the scope of going-forward relief sought by plaintiffs. But the
2. Delay from a Stay
Plaintiffs argue that delaying the three tracks of cases in this MDL pending the FDA‘s resolution of the PMTA will cause an unnecessary delay in the resolution of the hundreds if not eventually thousands of cases that are part of the MDL. They contend that while JLI has now filed its PMTA, it has already caused significant delay by initially intentionally avoiding FDA guidance (taking the position that the FDA did not have jurisdiction over its products under the TCA) and by opposing any expedited review of its products by the FDA when Congress included ENDS within the TCA. JLI disputes the allegations of intentional delay and asserts that its prior acts are irrelevant now that its PMTA has been filed and the FDA is under deadlines to act.
Plaintiffs contest the firmness of those deadlines, noting the FDA‘s limited resources in light of the demands resulting from the COVID-19 pandemic and the number of PMTAs that it now has under review. These factors make it probable that the FDA will need to seek additional time to consider the hundreds of now-pending PMTAs from JLI and others.13 Plaintiffs add that even since a court ordered the FDA to adhere to specific deadlines for processing PMTAs, manufacturers have sought and the court or the FDA has granted further extensions to the deadlines because of the limited agency resources. Plaintiffs contend, therefore, that further extensions are highly likely while JLI asserts that any further delays or extensions are purely speculative.
At a minimum, a delay of at least twelve months is at stake. There is a significant risk of a longer delay given the demands on the FDA. Whatever action it takes on JLI‘s PMTA, the FDA will not affect, much less resolve, the bulk of plaintiffs’ liability theories based on JLI‘s and the
3. Other Factors
The other factors do not strongly weigh one way or the other. As noted, there are significant claims in these proceedings that will need to be resolved irrespective of what the FDA determines. JLI is correct that the FDA has a high level of expertise in regulating tobacco and nicotine containing products, although its responsibility for and expertise with respect to ENDS is relatively new and developing. But the technical and policy questions that will be addressed by the FDA do not supplant the legal and fact-based issues to be resolved by me or a trier of fact. For example, was JLI‘s and the other defendants’ marketing unfairly and illegally targeted to youth and tribes? Did the level of nicotine found in the products (or their possible if not encouraged method of use) cause significant health impacts on the personal injury plaintiffs? Those sorts of questions are squarely within the expertise of courts and juries to answer.
JLI is also correct that a comprehensive federal approach to the design and marketing of ENDS is undoubtedly in the public interest. However, whether the FDA‘s regulation of ENDS generally and JLI‘s products specifically will be uniform and touch upon some significant portion of the issues raised in this case is uncertain. In the end, what the FDA regulates and mandates regarding the design for any permitted JLI products or what labels and other marketing will be allowed might impact some claims, but likely will not be determinative of the vast majority of them. Such issues can be addressed if and when they actually arise.14
JLI‘s motion to stay and the Retailer Defendants’ motion to dismiss based on primary jurisdiction are DENIED.15
II. MOTIONS TO DISMISS BASED ON PREEMPTION
Absent a stay or dismissal under the primary jurisdiction doctrine, JLI and the Retailers also move to dismiss because plaintiffs’ state law claims are preempted by the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA) that gave the FDA broad authority to regulate all tobacco products, including the “deemed” ENDS products at issue in these proceedings.
I considered similar arguments in the Colgate v. JUUL Labs, Inc. class action that was pending before the inception of this MDL. See Colgate v. JUUL Labs, Inc., 345 F. Supp. 3d 1178 (N.D. Cal. 2018) (Colgate I); Colgate v. JUUL Labs, Inc., 402 F. Supp. 3d 728, 745 (N.D. Cal. 2019) (Colgate II). I addressed the express preemption of plaintiffs’ false advertising and related consumer protection claims. Considering the scope of the false advertising and related claims alleged, I concluded that most of plaintiffs’ state law claims were not preempted, except for a narrow set of claims based on allegations that “the product label fail[s] to disclose the greater potency and addictiveness of JUUL‘s benzoic acid and nicotine salt formulation.” Colgate I, 345 F. Supp. 3d at 1189. The preempted claims were related to statements on the labels of the products and not more generally to “advertising” of the products. Id. at 1190 (concluding the exception clause at
In the current motions, JLI and the Retailer defendants contend that preemption should be extended because the Colgate orders were made with “less extensive briefing” and considered “less expansive claims” than those asserted in the MDL proceedings. That is true, but there are two main reasons why the end result regarding preemption is essentially the same as in Colgate.
First, the only relevant area where the FDA has in fact spoken – and where any state law might seek to impose duties “different from, or in addition to” those imposed by the FDA – is the limited nicotine warning required by
Second, an issue only touched upon in passing in Colgate II is the TCA‘s express savings clause that expressly preserves state law products liability claims. That express savings clause (
As explained below, the vast majority of plaintiffs’ claims may proceed now. No claims other than the false and misleading claims based on failure to disclose nicotine addictiveness on labels of JLI‘s products are preempted.
A. Legal Standard
1. Preemption
Under the Supremacy Clause “[i]f federal law ‘imposes restrictions or confers rights on private actors” and “a state law confers rights or imposes restrictions that conflict with the federal law,” “the federal law takes precedence and the state law is preempted.‘” Kansas v. Garcia, 140 S. Ct. 791, 801 (2020) (quoting Murphy v. National Collegiate Athletic Assn., 138 S. Ct. 1461, 1480 (2018)). “In all cases, the federal restrictions or rights that are said to conflict with state law must
Express preemption is found where Congress “enact[s] a clear statement to that effect.” In re Volkswagen “Clean Diesel” Mktg., Sales Practices, and Products Liab. Litig., 959 F.3d 1201, 1211 (9th Cir. 2020). “Congress may also preempt state law implicitly,” but implied preemption will only be found where there is sufficient evidence of Congressional intent to preempt that overcomes the “high threshold” of the strong presumption against preemption of state law. Id. That implied preemption may be found only where Congress’ intent was to occupy the “field” of regulating the subject matter or where state law “conflicts” with the federal regulatory scheme, and compliance with both is impossible or raises an obstacle to the regulatory objective of Congress. Id. at 1212.
2. Statutory Scheme
The Family Smoking Prevention and Tobacco Control Act of 2009 (TCA,
“A tobacco product shall be deemed to be misbranded” if “its labeling is false or misleading in any particular,”
(a)(2) Preemption of certain State and local requirements
(A) In general
No State or political subdivision of a State may establish or continue in effect with respect to a tobacco product any requirement which is different from, or in addition to, any
(B) Exception
Subparagraph (A) does not apply to requirements relating to the sale, distribution, possession, information reporting to the State, exposure to, access to, the advertising and promotion of, or use of, tobacco products by individuals of any age, or relating to fire safety standards for tobacco products....
(b) Rule of construction regarding product liability
No provision of this subchapter relating to a tobacco product shall be construed to modify or otherwise affect any action or the liability of any person under the product liability law of any State.
“WARNING: This product contains nicotine. Nicotine is an addictive chemical.”
(3) A retailer of any tobacco product covered by paragraphs (a)(1) and (2) of this section will not be in violation of this section for packaging that:
(i) Contains a health warning;
(ii) Is supplied to the retailer by the tobacco product manufacturer, importer, or distributor, who has the required state, local, or Alcohol and Tobacco Tax and Trade Bureau (TTB)-issued license or permit, if applicable, and
(iii) Is not altered by the retailer in a way that is material to the requirements of this section.
B. Express Preemption
1. Product Liability
Defendants argue that under
Neither side, however, provides helpful or specific analysis to assist me in drawing those lines. Defendants generally stick with “nearly all” of plaintiffs’ claims are not true product liability claims, for example because the claims in the PIC are “generic claims” untethered to any particular state‘s laws. In response, plaintiffs assert that “all or most of their claims” sound in product liability and more specifically that each of the 19 claims in the PIC are product liability claims by simple virtue of being alleged in the PIC.
Defendants contend more specifically that any claim in the PIC seeking “economic damages for alleged misrepresentations” cannot be considered a product liability claim. PIC ¶ 997 (Unjust Enrichment), ¶ 1011 (Violation of Unfair Trade Practices/Consumer Protection Laws), ¶ 1029 (Breach of Warranty), ¶ 1044 (Breach of Implied Warranty). Plaintiffs do not directly address whether some of the claims in the PIC are true product liability claims under various state laws, but insist instead that because the “PIC” as a whole asserts personal injury the claims are
Another difficult question is whether “failure to warn” claims that are product liability claims are nonetheless subject to preemption to the extent that they touch upon JLI‘s past or future failures to disclose the FDA‘s now-approved nicotine addiction warning in
2. Product Design/Standards Claims
Defendants argue that plaintiffs’ non-product liability claims are expressly preempted. Design and product standards (e.g., nicotine yields, components, ingredients, additives, and properties of tobacco products) are committed to the authority of the FDA; the CAC, PIC, and the PECs assert broad claims challenging both product design features (e.g., smooth delivery of nicotine and sleek easily concealable design) and standards (e.g., dosage of nicotine and flavored products) of JLI‘s products. But that argument fails because the FDA has not yet proscribed any actual design or product standards for ENDS. Without the existence of any defined “standards“, there can be no supposed preemption of state law standards that are “different from or in addition to” the federal ones. See, e.g., GoodCat, LLC v. Cook, 202 F. Supp. 3d 896, 912 (S.D. Ind. 2016) (“the clause does not operate unless the FDA regulates the adulteration of tobacco products“). Express preemption does not bar any of plaintiffs’ claims touching on design and standards at this point.
3. Packaging and Labelling Claims
In the Colgate Orders I concluded that labeling claims – both based on the presence or absence of false and misleading disclosures about nicotine addiction and failure to warn theories –
Defendants argue that numerous claims in all three sets of operative complaints (CAC, PIC, and PECs) allege that JLI “failed to warn” about alleged risks of nicotine addiction and physical harm and that JLI advertised JUUL products are “reasonable alternatives” to combustible cigarettes when they were not. Defendants contend that these claims are preempted because they “would impose” additional or different requirements under state law related to “misbranding” and “labelling” that are within the exclusive control of the FDA under
I cannot determine what might be “different from or in addition to” any particular standards that the FDA might adopt in the future. I do not agree with defendants’ implicit argument that the states are wholly without authority with respect to ENDS and that state laws may not impose any requirements on labelling. That is contrary to the “exception” clause in
Defendants ask me to depart from Colgate and conclude that under on Nat‘l Meat Ass‘n v. Harris, 132 S. Ct. 965, 970 (2012), the broad “which is different from, or in addition to” preemptive language with respect to labelling means that no labelling claims can be asserted. They argue that any theoretical requirement imposed under state law would be different from or in addition to the labeling required by the FDA. But the only requirement in place is the self-described “minimum” nicotine warning.17 A theoretical warning or disclosure that might be required under state common law on a wholly different topic (for example, regarding the amount of recommended use given a particular device‘s delivery method) is not different from or in addition to any existing FDA labelling requirement on that specific topic.
Therefore, plaintiffs are correct that omissions of “deadly safety defects” that they contend should have been made under state law duties are not expressly preempted, other than any related to the minimum nicotine addiction warning from the labels of the JUUL products. If and when the FDA issues additional labelling requirements, this argument can be reassessed.18
I agree with defendants that labelling claims based on nicotine addiction are preempted, as found in the Colgate orders. Plaintiffs dispute whether that analysis extends to the “failure to warn” product liability claims asserted in the PIC. Given the savings clause “preserving” state authority over claims that are not expressly preempted, the issue becomes one of implied, not
Defendants do not persuade me that claims that JUUL labels included statements that were “false and misleading” (other than the discussed nicotine addiction warnings) are expressly preempted. I find instructive the Ninth Circuit‘s food and cosmetic labelling cases interpreting similar preemptive language, like “different from,” “in addition to,” or “not identical with,” from the relevant federal regulations. Those cases conclude that where plaintiffs were not asking defendant to “modify or enhance any aspect of its [] labels that are required by federal law,” claims regarding false and misleading labels were not preempted. Astiana v. Hain Celestial Group, Inc., 783 F.3d 753, 758 (9th Cir. 2015); see also Ebner v. Fresh, Inc., 838 F.3d 958, 964-965 (9th Cir. 2016) (the claim based on the “omission of supplemental statements is not expressly and affirmatively permitted by law“).19
Relatedly, I disagree with defendants’ attempt to revisit and reverse the conclusions in the Colgate orders concerning whether claims regarding false and misleading “labeling” are not expressly preempted because “misbranding” is defined as including, among other acts, if a product label “is false or misleading in any particular.”
Finally, the answer to whether disclosures regarding a product on a “website” constitutes labelling – discussed by the parties in footnotes – would seem to be straight-forward. The statute defined “labeling” to mean “all labels and other written, printed, or graphic matter (1) upon any article or any of its containers or wrappers, or (2) accompanying such article.”
4. Advertising Claims
Relatedly, defendants argue that all false and misleading advertising claims in the three sets of operative complaints are preempted because the preemptive “different from, or in addition to” language of the express preemption provision includes “misbranding” and misbranding is defined in part as when “in the case of any tobacco product distributed or offered for sale in any State (A) its advertising is false or misleading in any particular,”
I rejected that argument in Colgate I. See Colgate I, 345 F. Supp. 3d at 1190 (the “exception clause expressly excepts advertisements from preemption“); see also Nat‘l Ass‘n of Tobacco Outlets, Inc. v. City of Providence, R.I., 731 F.3d 71, 82 (1st Cir. 2013) (under the Family Smoking Prevention and Tobacco Control Act, “the savings clause, overrides the standards preemption but allows only regulations ‘relating to’ the sale of tobacco products“). It unduly expands the concept of misbranding, one aspect of which may be advertising with respect to products sold in states. It
If the FDA eventually issues a regulation or standard saying, “if product X is advertised as Y, that is misbranded and illegal under the TCA,” the FDA could – presumably – take action like forcing the misbranded product from the market. But even if the FDA acted in that matter and identified a particular JLI or other ENDS advertisement as false and misleading and misbranded, that would not automatically wipe out a state law “false and misleading” claim that was identical to and perfectly consistent with the FDA‘s interpretation.
The parties’ dispute over the implications flowing from the amendments the TCA made to the Federal Cigarette Labeling and Advertising Act (FCLAA) is interesting but, as plaintiffs note, the FDA‘s Deeming Rule itself recognized that each statute has to be considered given its own terms. 81 Fed. Reg. at 28, 989 (“For example, the FCLAA and CSTHEA provisions expressly preempt State and local regulation of the content of cigarette and smokeless product advertisements, while section 916(a)(2)(B) of the FD&C Act exempts State and local advertising restrictions from preemption.“). The FCLAA amendments concern preemption of state “statutes” and “regulations” on content (but not regulations governing the time, place, and manner of advertisements), and those provisions do not help inform the interpretation of the express saving of state law “claims” on which plaintiffs rest most heavily for the claims asserted in the PIC.
5. Modified-Risk Claims
Defendants argue that because plaintiffs repeatedly claim that JLI misrepresented its products as “less harmful” than combustible cigarettes, plaintiffs are alleging that JLI‘s products
I agree with plaintiffs. The mere fact that defendants allegedly misleadingly portrayed their products as something they were not does not bring the claims (or, in fact, the products) under the separate modified-risk regulations.
6. Retailer-Specific Preemption
The Retailer Defendants, like the other defendants, join in the preemption arguments made by JLI. Those are addressed above. They separately argue that the claims against them – related to their conduct advertising, promoting, and selling JUUL products – are preempted under
The Retailers also point out – with respect to the broader concepts of “misbranding” and “advertising” – that the FDA mandated that the nicotine addiction warning be carried on “packaging and advertising” for the newly deemed ENDS (81 Fed. Reg. at 28,988) and that
Plaintiffs respond, as above, that none of their claims is expressly or impliedly preempted because state law product liability claims are expressly saved under the TCA, and because only product liability claims are asserted in the PIC against the Retailers and other defendants.
The Retailer-specific arguments under Section 1143.3 are derivative from the only FDA mandated warning currently imposed on ENDS under that section, the nicotine-addiction warning discussed in Colgate I. As noted above, plaintiffs’ claims (generally, across all three sets of complaints) regarding failures to disclose or misleading disclosures on labels regarding other topics are not preempted absent further action by the FDA. More broadly, advertising is expressly exempted from the TCA‘s express preemption clause despite defendants’ rejected attempt to bring all advertising-based claims within the distinct “misbranding” arena.
The Retailer Defendants’ motion to dismiss based on express preemption is DENIED.
C. Implied Preemption
Defendants also argue that all of the claims within this MDL – even the product liability claims falling within the savings cause – are impliedly preempted under “conflict” preemption principles. They contend that because plaintiffs’ claims may seek to impose liability and standards of conduct on defendants that may conflict, undermine, or otherwise interfere with the standards and regulatory actions the FDA may issue and take in the future, the claims are preempted. But this puts the cart well before the horse.
I assume for purposes of this motion that implied preemption principles could apply to preempt a specific product liability claim notwithstanding the express savings clause if the FDA issues a regulation or standard that directly conflicts with state law-based personal injury claims
However, this analysis depends on (1) whether and how the FDA exercises what both sides recognize as its broad regulatory authority and (2) whether it does so in a manner that will create a conflict so that (i) a specific goal of the FDA would be frustrated by allowing specific state law claims to proceed or (ii) the FDA issues a specific regulation or standard that would be impossible for defendants to comply with in light of particular product liability claims asserted by plaintiffs. Other than with respect to the nicotine-addiction warning addressed above, there is no evidence that either of these scenarios will occur, much less when they might occur. It is true that the FDA could take actions that impact the strength of some of plaintiffs’ claims or even conflict-preempt them. If and when that potential conflict arises, I can address it. Absent the FDA‘s issuance of those standards under the TCA, I cannot assess conflict preemption now. No one knows how broadly or narrowly the FDA will regulate ENDS generally or JLI‘s products specifically, other
This posture is unlike the main authority on which JLI relies, Geier v. Am. Honda Motor Co., Inc., 529 U.S. 861, 874-75 (2000), because the federal standard here is not final. The federal standard at issue in Geier – the passive restraint standard issued by the Secretary of the Department of Transportation that expressly gave car manufacturers a number of different passive restraints they could use – was final. Despite the presence of a savings clause that generally preserved state law product liability claims, the Supreme Court determined that implied, conflict preemption prevented a specific product liability claim. The Court agreed that allowing a state law products liability action based on the failure of a manufacturer to adopt one of the allowed (but not required) passive restraint standards (use of air bags) “conflicts with the objectives of” the federal standard to allow a mix of restraints and if allowed would stand as an “obstacle to the variety and mix of devices that the federal regulation sought.” Geier, 529 U.S. at 866, 881.22
Given that field preemption is clearly not contemplated by the structure of the TCA – the statute expressly preempts only “different or identical too” standards, except advertising and other laws governing sales and promotion, and includes a strong, express saving clause preserving state law product liability claims – defendants’ arguments that allowing state law claims generally “frustrates” federal objectives is not well-taken.23 If the FDA later imposes methods (standards and regulations) on ENDS generally or JLI products specifically that would be frustrated by allowing state law claims to proceed or if specific state law claims create an impossibility conflict with those not-yet-issued federal standards or regulations, this issue will be reconsidered.
Finally, the nicotine addiction warning that has been promulgated might conflict-preempt
Defendants’ motions to dismiss based on preemption are DENIED.
III. MOTIONS TO DISMISS RICO CLAIMS
Defendants JLI, Altria, and the Officer and Director Defendants move to dismiss the RICO claims asserted against each of them in both the CAC and the PECs.
A. Legal Standards
To state a RICO claim, plaintiffs must plausibly allege that each defendant acted, directly or indirectly, in (1) the conduct, (2) of an enterprise that affects interstate commerce, (3) through a pattern, (4) of racketeering activity. Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014) (citing
“In order to ‘participate, directly or indirectly, in the conduct of [an] enterprise‘s affairs,’ one must have some part in directing those affairs.” Reves v. Ernst & Young, 507 U.S. 170, 179 (1993) (quoting
RICO defines “racketeering activity” as any of the predicate acts listed in
The “scheme to defraud” element of mail and wire fraud is “treated like conspiracy in several respects.” United States v. Stapleton, 293 F.3d 1111, 1117 (9th Cir. 2002) (quoting United States v. Lothian, 976 F.2d 1257, 1262 (9th Cir. 1992)). As a result, each member of the scheme does not need to make a separate misrepresentation. Id.
A “pattern of racketeering activity” requires the commission of at least two predicate acts within a ten-year period.
RICO‘s injury standard requires the plaintiff to plead “a harm to a specific business or property interest,” which is “a categorical inquiry typically determined by reference to state law.”
A plaintiff asserting a private cause of action for a RICO violation must also satisfy a causation requirement: the plaintiff must plausibly allege at the pleading stage that the RICO violation was a “but for” cause and proximate cause of its asserted injuries. Canyon Cty., 519 F.3d at 981. “When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff‘s injuries.” Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006). Three non-exhaustive factors are considered: “(1) whether there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff‘s damages attributable to defendant‘s wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.” Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1169 (9th Cir. 2002) (relying on Holmes v. Sec. Inv‘r Prot. Corp., 503 U.S. 258, 268 (1992)).
“[A] RICO conspiracy under
B. RICO Allegations
1. CAC
Plaintiffs assert claims arising under the Racketeer Influenced and Corrupt Organizations Act (“RICO“) (
Those efforts to expand the market of nicotine-addicted e-cigarette users, including youth, included the following Enterprise acts: (1) developing a product with an undisclosed and heightened ability to smoothly deliver and addict nicotine users and running it through purposely reengineered tests to obscure nicotine content and delivery, see, e.g., CAC ¶¶ 115, 125, 168, 179; (2) distributing advertisements that omitted references to or misrepresented the nicotine content in JUUL products and developing marketing campaigns that intentionally targeted youths, see, e.g., CAC ¶¶ 286-304, 341-43, 752; (3) coordinating with Altria to distribute misleading statements to the FDA fraudulently characterizing mint (a flavor offered by both JLI and Altria) as a non-flavored tobacco and menthol product, claiming that it was a product for adult smokers, see, e.g., CAC ¶¶ 472-505, 752; (4) sharing data between JLI and Altria to allow the Enterprise members to align on strategy for growing the e-cigarette market, see, e.g., CAC ¶ 42-44, 48, 124, 397, 419-25; (5) formalizing the partnership between JLI and Altria through an equity investment, see, e.g., CAC ¶¶ 42-46; (6) coordinating with non-defendant co-conspirator Veratad on means of defeating age-verification processes, see, e.g., CAC ¶¶ 374-95; (7) transmitting to the FDA a fraudulent youth prevalence study addressing both tobacco products generally and JUUL products that misrepresented the popularity of the Mint flavor among kids and vastly understated the percentage of youth using e-cigarettes, see, e.g., CAC ¶ 474-78, 752; (8) coordinating with Altria to distribute the fraudulent and misleading “Make the Switch” advertisements, see, e.g., CAC ¶¶ 202-04, 752;
Plaintiffs allege that “Early Enterprise Defendants” JLI, Monsees, Bowen, Pritzker, Huh, and Valani “formed the Nicotine Market Expansion Enterprise by at least 2015” with non-defendant co-conspirator Veratad Technologies LLC when these defendants “prepared to launch the JUUL e-cigarette and capture and grow a market of nicotine-addicted users that would serve as customers for life.” Id. ¶ 715. The Early Enterprise Defendants are alleged to have developed a product that gave a quicker buzz and a more palatable yet higher dosage of nicotine to consumers after manipulating studies and deceiving the consumers and the public regarding the highly addictive nature of the JUUL product. Id. ¶¶ 32, 74, 88-116, 168-175, 175-199.
Plaintiffs contend that the Early Enterprise Defendants knew that the most impressionable and profitable user base would be youth users, and so Bowen, Monsees, Pritzker, Huh, Valani, and JLI devised and implemented a marketing plan to target youth, including the “Vaporized” campaign and other youth-oriented campaigns. Id. ¶¶ 333-353. Once the JUUL product hit the market, these defendants hired Veratad, which is alleged to have coordinated with the Enterprise defendants to “to get JUULs into the hands of the largest number of consumers possible.” CAC ¶ 374. Plaintiffs claim that Veratad provided JLI with “age verification services” for purchases made through JLI‘s website from 2015 to 2018, and that Veratad provided age verification services to other e-cigarette sellers, including Lorillard and Altria. Id. ¶ 376. Plaintiffs contend that “JLI and Veratad designed and implemented an age verification system designed to maximize the number of prospective purchasers who ‘pass’ the process rather than to minimize the number of underage sales. As a result of these intentionally permissive age verification practices, JLI and Veratad used online payment systems and the US mails to ship tens of millions of dollars of JUUL pods to unverified customers, many of whom were minors.” Id. ¶ 377. “Veratad‘s age verification system was purposefully flexible, so JLI and Veratad could work together to decide just how closely a prospective purchaser‘s personal information had to match records in Veratad‘s database in order to “pass” the age verification process; JLI and Veratad worked together to “bump up” the number or purchasers who could pass the flexible age verification process,
Plaintiffs contend that “[i]n the Spring of 2017, Defendant Altria joined the Nicotine Market Expansion Enterprise. Non-defendant member Veratad would leave the Enterprise sometime in 2018 when it stopped coordinating with Defendant JLI. Each Early Enterprise Defendant is liable for the predicate acts of the enterprise committed no later than its formation in 2015, and Defendant Altria is liable for the predicate acts of the enterprise committed no later than when it joined the Enterprise in Spring 2017.” Id. ¶ 718.
2. Public Entity Complaints
The factual allegations and bases of purported RICO liability in the PECs are materially similar to those in the CAC, with additional allegations regarding injury from defendants’ alleged conduct specifically targeting youth and schools. See, e.g., TVC ¶¶ 176, 441, 445, 701. There are, however, significant differences with respect to the government entities’ allegations regarding the types of injuries and damages caused. The PECs allege that the youth e-cigarette epidemic caused by defendants’ actions forced them expend “limited financial and other resources to mitigate the health crisis of youth e-cigarette use,” by “providing new programs and new services as a direct result and in direct response to Defendants’ misconduct.” TVC ¶¶ 701-703; see also TVC ¶ 597 (generally allege that plaintiffs were “forced to divert resources and deploy new ones to combat the problem of teen e-cigarette use“); TVC ¶ 605 (“incurred additional legal expenses in connection with disciplinary hearings“); TVC ¶ 607 (purchased and installed e-cigarette detectors, cameras and anti-vaping signs around school district property); TVC ¶ 609 (property damage caused by growing hazardous waste problem, “either from youth improperly disposing of [the products] by littering or throwing them in the trash or toilets, or because teachers and school staff must confiscate and store them“).
C. Enterprise
An associated in fact enterprise has three elements: (1) a common purpose, (2) a structure or organization, and (3) longevity necessary to accomplish the purpose. Boyle v. United States, 556 U.S. 938, 946 (2009). Plaintiffs in the CAC and PECs allege, generally, that the common purpose of the RICO Nicotine Market Expansion Enterprise was to increase the number of
Plaintiffs allege that the associated-in-fact Nicotine Market Expansion Enterprise began in 2015 and expanded in Spring 2017 to include Altria. Plaintiffs contend that the Enterprise existed separately from the otherwise legitimate business operations of JLI, Altria, and the investment companies with which the Other Director Defendants are affiliated because it was focused on the illegitimate and undisclosed (to the public and regulators) goals of creating new nicotine addicts and targeting youth. CAC ¶¶ 714, 727. Plaintiffs state, generally, that the Enterprise achieved its common purpose through the co-conspirators’ actions in deceiving consumers, regulators, and the general public about the nature of the product (the potency of nicotine delivery and potential for fostering addiction) and its intent (falsely or unduly portraying it as a smoking cessation product when the Enterprise intended to capture new nicotine addicts and denying its true intent to target
Defendants argue, generally, that plaintiffs’ allegations regarding common purpose and the existence of an “organization” separate from JLI itself are fatally deficient. They do not really challenge the common purpose element of the Enterprise, the alleged scheme to defraud. They do contest the adequacy of allegations regarding each individual participant‘s intent or agreement with that purpose, which I address later. But their main defense to the existence of the AIF Enterprise is that plaintiffs have not alleged facts showing that the Nicotine Market Expansion Enterprise is really anything other than JLI (and JLI combined with Altria) or that conduct of the participants is anything more than the fulfillment of their duties owed to JLI as officers, directors, service providers, and investors. Cases recognize that where the individual constituents of an asserted enterprise are alleged only to have conducted the “regular” business” of the corporate entity or business in their own interests, those allegations are insufficient to support a RICO enterprise.
Defendants characterize all of the alleged conduct of the Enterprise as “regular” business of JLI (even if fraudulent, as plaintiffs allege but defendants contest) and not the separate and distinct conduct of a “Nicotine Market Expansion Enterprise.” They note that the alleged goals of the Enterprise are essentially aligned with JLI‘s goals; expanded sales of JUUL products and capture of ENDS market share.25 Even if the conduct was fraudulent, that does not transform it into distinct “enterprise” conduct actionable under RICO. See, e.g., In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Pracs., & Prods. Liab. Litig., 826 F. Supp. 2d 1180, 1202-03 (C.D. Cal. 2011) (where “plaintiffs merely allege that the Defendants are associated in a manner directly related to their own primary business activities” and alleged “no more than that
Plaintiffs respond, first, that these general attacks raise questions of fact that are not appropriately determined on a motion to dismiss. Oppo. JLI/Altria RICO at 23-24; see, e.g. Bias v. Wells Fargo & Co., 942 F. Supp. 2d 915, 942 (N.D. Cal. 2013) (“Wells Fargo’s challenge that its actions were simply ‘normal business dealings’ without the existence of an enterprise or any ‘common purpose’ is fact-determinative and cannot be resolved at this juncture.”).26 However, plaintiffs need to assert plausible allegations to support the existence of this AIF “Nicotine Market Expansion Enterprise” separate and apart from the regular business of JLI. The current allegations in the CAC often allege that JLI itself (including specifically those broadly in charge, like the CEO who eventually replaced Monsees and who is not alleged to be part of the AIF Enterprise) had the purpose of growing the nicotine market and even doing so by targeting youth. Those broad and undifferentiated allegations make it difficult to plausibly allege the existence of a separate AIF Enterprise.
Relatedly, JLI and the Officer and Director Defendants argue that they could not have formed a separate, distinct enterprise because JLI’s officers, directors, and employees are categorically not “distinct” from JLI for purposes of RICO. See, e.g., Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 F.3d 353, 361 (9th Cir. 2005) (“To be sure, if the ‘enterprise’ consisted only of DuPont and its employees, the pleading would fail for lack of distinctiveness.’” (citing Cedric Kushner, 533 U.S. at 164)); In re: Gen. Motors LLC Ignition Switch Litig., 14-MC-2543 (JMF), 2016 WL 3920353, at *12 (S.D.N.Y. July 15, 2016). (“A corporation carrying out its own activities (even fraudulent ones) only through its agents and employees does not constitute an enterprise.”). JLI and the Officer and Director Defendants, therefore, argue that the existence of a properly pleaded Enterprise depends on Veratad and Altria being part of it.
Plaintiffs respond that they have “extensive” allegations regarding how Veratad worked
That is why plaintiffs’ reliance on City of New York v. Gordon, 155 F. Supp. 3d at 423 is not useful. There, the fact that the third-party participant in an admitted AIF enterprise was hired by defendants and others to deliver contraband cigarettes, did not undermine the RICO claim as the conduct was in all circumstances illicit. Here, plaintiffs attempt to allege an Enterprise distinct from the “otherwise legitimate business operations of JLI, Altria, or the investment companies with which Defendants Pritzker, Huh, and Valani are affiliated,” CAC ¶ 714, but fail to connect Veratad and indeed much of the alleged Enterprise participants’ conduct to anything other than JLI and Altria’s normal business. Plaintiffs have not adequately alleged plausible facts that Veratad joined, was part of, and provided services for, the separate Nicotine Market Expansion Enterprise.
As for the subsequent “Altria period,” defendants argue that the allegations establish only that Altria and JLI were acting in their joint corporate interests, not as a distinct Enterprise. Defendants point out that Altria and JLI were purported competitors from Spring 2017 to December 20, 2018, and the only alleged coordination during that time was that Altria had apparent access to JLI’s sales data in 2017 that plaintiffs allege was secured through a third party, Avail Vapor. CAC ¶¶ 419-423, 731; TVC ¶¶ 463-467, 671. The allegation is that both JLI and Altria used Avail Vapor as a conduit for their confidential negotiations about joining forces.
Defendants contend that this attenuated connection cannot establish an “association-in-fact” enterprise with Altria. See Nordberg v. Trilegiant Corp., 445 F. Supp. 2d 1082, 1090-91 (N.D. Cal. 2006) (dismissing RICO claim where all “that is alleged is that defendants entered into these agreements with numerous third-parties—who notably are unnamed in the complaint—and
Plaintiffs also point to their allegations (taken as true for purposes of motion to dismiss) that Altria secured shelf-space that it intended for JUUL products (with knowledge of JLI’s youth-targeting through marketing and product displays) and that Altria joined with JLI to attempt to keep mint-flavored products on the market (knowing that mint pods were a main driver of youth use and JLI sales generally). CAC ¶¶ 427-429, 472-489. These allegations do not support distinctiveness or that Altria’s conduct was intended to support the Enterprise as opposed to the general business of JLI which, as plaintiffs plausibly allege, Altria worked to support in advance of the culmination of its investment in December 2018.
The significance of the amount of Altria’s investment as of December 2018 (35%) is likewise contested. Plaintiffs contend that high percentage of Altria’s investment is significant in and of itself and supports the inference that Altria joined the Enterprise in order to grow the number of nicotine addicts and create a new pipeline for profits. Defendants counter that the size of the investment strengthens their argument that Altria invested for its own economic interests, and not to join an already existing Enterprise. See, e.g., In re Countrywide, 2012 WL 10731957, at *8 (where “parties that enter commercial relationships ‘for their own gain or benefit’ do not constitute an ‘enterprise,’”); Toyota, 826 F. Supp. 2d at 1202-03. (“[T]he SAC alleges no more than that Defendants’ primary business activity—the design, manufacture, and sale or lease of Toyota vehicles—was conducted fraudulently.”).
In short, plaintiffs have not plausibly alleged the existence of a distinct Enterprise, separate and apart from the general business of JLI. There is too little to plausibly allege that
D. Conducted Affairs of Enterprise
Each defendant also challenges the pleadings regarding the alleged roles and conduct in support of the Enterprise. Two lines of authority are implicated by defendants’ challenges.
On the merits, “[i]n order to ‘participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs. Of course, the word ‘participate’ makes clear that RICO liability is not limited to those with primary responsibility for the enterprise‘s affairs, just as the phrase ‘directly or indirectly’ makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise’s affairs is required.” Reves v. Ernst & Young, 507 U.S. 170, 179 (1993). “Numerous courts have held that Reves is satisfied by evidence that lower-rung members of an enterprise implemented decisions directed by those higher up the ladder in the enterprise or committed racketeering acts which furthered the basic goals of the enterprise at the direction of other members of the enterprise.” U.S. v. Philip Morris USA, Inc. (Philip Morris I), 449 F. Supp. 2d 1, 876 (D.D.C. 2006) A defendant can satisfy this “conduct” element by simply “coordinating and
1. Bowen
Bowen argues that he must be dismissed from the RICO claims because nowhere in the CAC or PECs is he alleged to have personally committed any fraud and there are no facts alleged regarding his agreement to join the Enterprise or how he personally managed or operated the Enterprise. He claims that the facts alleged show only that he was furthering the regular business of JLI.
Plaintiffs identify the following allegations regarding Bowen’s role and conduct in the Enterprise: “JLI and Bowen designed the JUUL product to deliver nicotine in larger amounts and at a faster rate than even cigarettes, and then knowingly misled the public about those facts,” including by altering or re-engineering his own studies concerning nicotine content to mask the true content and impact in the products he developed. CAC ¶¶ 100-115, 171, 222. Bowen discussed those engineered test results (the Phase 1 results), and how they differed from the Phase 0 results, with defendants Monsees, Pritzker, and Valani. Id. ¶ 178. Bowen was personally involved in approving the fraudulent advertisements and other “public-facing” statements attributed generally to the “Early Enterprise Defendants” because, as defendant Monsees testified to Congress that he, Bowen, Pritzker, Huh, and Valani had “final say” over marketing campaigns. Id. ¶ 333. It was through this “final say” that plaintiffs claim that Bowen conducted the affairs of the enterprise and is jointly responsible for acts of mail and wire fraud attributed to the “Early Enterprise Defendants” in paragraph 752 of the CAC, including the early Vaporized campaign, which omitted any reference to JUUL’s highly addictive nicotine content. Id. ¶ 752. Plaintiffs assert that Bowen is responsible for these fraudulent advertisements because he was “directing and monitoring the launch plans [the JLI Board] had set in motion,” id. ¶ 346, and that he suggested affirmatively leveraging youth user generated content to further expand youth addiction. Id. ¶ 357. Finally, plaintiffs say that his involvement, through the JLI Board of Directors, was critical to the coordination with Altria and its ultimate investment in JLI. Id. ¶ 44.
Bowen responds that the only specific facts alleged regarding him concern his co-founding
Plaintiffs argue that the lack of specific connections between any defendant and Veratad is not itself significant under established caselaw recognizing that “it is not necessary to prove ‘that every member of the enterprise participated in or knew about all its activities.’” Philip Morris I, 449 F. Supp. 2d at 868 (quoting United States v. Cagnina, 697 F.2d 915, 922 (11th Cir.1983)). Plaintiffs contend that their very generalized allegations regarding “control” by the Officer and Director Defendants support the inference that some of them were responsible and directly knowledgeable about Veratad’s conduct in support of the Enterprise. In their opposition, plaintiffs reference additional evidence they have secured to support that inference. As noted, the allegations regarding Veratad are currently insufficient. If plaintiffs amend, they can allege what their “discovery map” has shown with respect to connections between Veratad and Bowen or the other Officers and Directors who are alleged part of the Enterprise.
Bowen’s other persuasive point is an argument raised by all of the Officer and Director Defendants; that attributing the advertisements and marketing to “All Early Enterprise Defendants” is impermissible group pleading prohibited by Swartz, supra. Plaintiffs contend that generalized attribution is of no legal moment because other express acts that contributed to and set in motion the deception are sufficiently alleged with respect to Bowen, such as his development of the product and re-engineering of tests.
I agree that those independent allegations identifying Bowen’s role and personal conduct at the initial design and engineering of the JUUL product and then the subsequent development and rollout of the JUUL product are sufficient as to him for RICO conduct. That said, I agree with Bowen that the lack allegations regarding his and any of the other Officer and Director Defendants’ roles with Veratad – addressed above – is problematic and needs further support. I also agree with Bowen and the other Officer and Director Defendants that their alleged “final say”
Plaintiffs repeatedly allege that the Officer and Director Defendants, both as a group and individually, committed acts cognizable as RICO conduct and by the UCL (as well as the other consumer protection statutes addressed below with respect to the Government Entity Complaints) because these defendants had “final say” over advertising and marketing as part of their role on JLI’s Board or on the Board’s Executive Committee. See, e.g., CAC ¶ 333. Bowen’s and the other Officer and Director Defendants’ challenge to this allegation as impermissible “group” pleading is not particularly persuasive. See, e.g., U.S. v. United Healthcare Ins. Co., 848 F.3d 1161, 1184 (9th Cir. 2016) (“There is no flaw in a pleading, however, where collective allegations are used to describe the actions of multiple defendants who are alleged to have engaged in precisely the same conduct.”).
But the “final say” allegation is insufficient for other reasons. First, the only citation in the CAC that gives any factual support to this allegation is a reference to Monsees’ July 25, 2019 statement before Congress. See, e.g., CAC ¶ 333 (citing to Examining JLI’s Role in the Youth Nicotine Epidemic: Part II: Hearing Before the Subcomm. on Econ. & Consumer Policy of the Comm. on Oversight & Reform, H.R., 116th Cong. 70 (2019)). In their opposition to the motion to dismiss the RICO claims, plaintiffs quote the following exchange from that testimony:
Q: Who has the final say, I guess, on what the company is doing now, operationally, related to marketing?
Mr. Monsees. You know, it is a combination between Kevin Burns, our CEO, and then our board, of which I am a member.
Oppo. JLI/Altria RICO at 16 n.15. On its face, that statement concerns only who was responsible for marketing as of July 2019.28 Second, plaintiffs do not expressly allege that the marketing
plans, steps, or initiatives that plaintiffs allege were key to further the RICO Enterprise (and that separately constitute consumer protection act violations, discussed below) were presented for Board approval and that the Officer and Director Defendants voted as a bloc to approve them and had sufficient numerical control or other influence over the Board to ensure their effectuation. Without identification of specific acts taken by the Officer and Director Defendants on the Board (or perhaps a plausibly supported allegation that marketing was controlled through the Board) and the defendants’ actual, numerical control of the Board, the very general “final say” allegation is insufficient as a hook for conduct of the Enterprise.
Turning back to Bowen specifically, there are sufficient allegations about his role in conducting the RICO Enterprise other than the “final say” and Board control allegations. Given his role in the company as a founder and officer and given the more specific allegations about his direct involvement and control over the design, testing, and initial rollout of the JUUL product identified above, the conduct element has been adequately alleged as to Bowen.
Plaintiffs allege that Monsees was a co-founder of the Enterprise and instrumental in the scheme to expand the market of nicotine-addicted e-cigarette users beyond those “who aren’t perfectly aligned with traditional tobacco products.” CAC ¶ 31. He is alleged to have studied cigarette industry marketing strategies and “personally reviewed” the photographs used in the allegedly fraudulent advertisements accompanying JUUL’s launch. Id. ¶¶ 62, 289. He purportedly “provided specific direction on the content of the website to JLI employees” that plaintiffs contend included false, misleading, and deceptive statements. Id. ¶ 333. He personally spread the allegedly fraudulent messages that JUULs are a cessation product and that JLI did not target youth. Id. ¶¶ 205-06, 210, 414, 416. And, as part of the Enterprise, he is alleged to be jointly responsible for the “multiple” acts of mail and wire fraud attributed to the Early Enterprise Defendants. Id. ¶ 752. While plaintiffs admit that Monsees ceded control of the JLI Board of Directors to Defendants Pritzker, Huh, and Valani in 2015, they contend that Monsees did so only to “allow those individuals to further co-opt the resources of JLI and take the Enterprise further than he could,” (id. ¶¶ 347-48), but his continued involvement with Bowen on the Board was “critical” to the unlawful coordination with Altria and its ultimate investment in JLI that directly benefitted Monsees, Bowen, Pritzker, Huh, and Valani. Id. ¶¶ 44-45.
Monsees argues these allegations fail to adequately allege his sufficient “direction or control” over the Enterprise and, instead, simply allege acts by Monsees that were taken as part of the “ordinary” business operations of JLI. All of this activity, according to Monsees, is the normal activity of a CEO and then Director of a company and not separate, distinct efforts on behalf of a RICO Enterprise. Drilling down on his “personal” involvement, Monsees notes that plaintiffs allege that persons other than Monsees “led” or directed some of the Enterprise acts alleged by plaintiffs (CAC ¶¶ 34, 728-729), which defeats the vaguer allegations about Monsees’s direction or control after October 2015. CAC ¶ 729. Finally, he notes that there are no specific facts alleged regarding his involvement prior to October 2015 other than his general status as a co-founder and CEO.
Putting aside the group allegations that Monsees as part of the Board had “final say” over
3. Other Director Defendants
Huh, Valani, and Pritzker also argue that the allegations are not sufficient as to them.30
Plaintiffs assert that, through their control of the JLI Board of Directors, these three Other Director Defendants worked with Bowen and Monsees to “finaliz[e] a ‘messaging framework’” at the time JLI launched JUUL. CAC ¶¶ 345-346. But, as noted above, the allegation regarding control of the Board is insufficiently alleged. Similarly, plaintiffs also state that each Other Director Defendant was involved in approving the fraudulent advertisements and other public-facing statements attributed generally to the “Early Enterprise Defendants,” given the “final say” allegation, but that too is insufficiently alleged.
Plaintiffs’ repeated blanket assertion that the “Board of Directors” generally and Huh, Valani, and Pritzker (along with Bowen and Monsees) through their “control” of the Board of Directors had “final say” over JLI’s marketing materials does not establish the requisite individual “direction or control” to pin liability for marketing acts or even specific marketing campaigns of
Plaintiffs also contend that the three Directors’ roles in the Enterprise went beyond the early fraud accompanying JUUL’s launch because they “orchestrated a take-over” of the JLI Board in October 2015, acting in concert with Bowen and Monsees, to install themselves as the Executive Committee of the JLI Board of Directors. Id. ¶¶ 347-48; see also id. ¶ 34 (“October 2015, Monsees stepped down from his role as Chief Executive Officer of JLI (to become Chief Product Officer) and, in his stead, Pritzker, Huh, and Valani formed an Executive Committee of the JLI Board of Directors that would take charge of fraudulently marketing JUUL products, including to youth.”) In those roles, plaintiffs allege that Pritzker, Huh, and Valani pushed for “even ‘more aggressive rollout and [marketing].’” Id. ¶ 353; see also id. ¶ 348 (alleging that Defendant Huh in particular supported continuing the fraudulent youth marketing).
The most specific allegations regarding conduct of the Executive Committee are: when Monsees stepped down in October 2015, the Executive Committee of Huh, Valani, and Pritzker is alleged to have “taken over the power of the CEO.” CAC ¶¶ 349, 350. Plaintiffs rely on a very few examples of Board minutes to “illustrate” that starting in late 2015, the Executive Committee exercised “direct control” over the company: (a) Huh ran board meetings, (b) the Executive Committee was to decide on reporting structure for a particular VP, (c) Huh was to make decisions on behalf of the Executive Committee, and Pritzker or Huh would be in office to “help manage
These generalized allegations are insufficient to connect each Other Director Defendant to conduct of the separate AIF Enterprise, as opposed to general acts to run or direct JLI. This dovetails with the concept of distinctiveness discussed above. There is weight to the Other Director Defendants’ argument that plaintiffs are simply trying to hold them liable for acts taken in their capacity as corporate directors, which is impermissible. See, e.g., Schwartz v. Pillsbury Inc., 969 F.2d 840, 843 (9th Cir. 1992) (“Under California law, which the parties do not dispute applies to this claim, directors and officers of a corporation do not incur personal liability for the torts of the corporation ‘unless they participate in the wrong or authorize or direct that it be done.’” (quoting United States Liab. Ins. Co. v. Haidinger–Hayes, Inc., 1 Cal.3d 586 (1970)). The Other Director Defendants can be held liable only if they personally participated, authorized, or directed specific fraudulent acts or under RICO conducted or directed specific acts of the distinct Enterprise separate and apart from routine business conducted by the Directors as a consequence of their positions on the Board. Those sorts of acts have not been adequately alleged. See, e.g., Ferrari v. Mercedes-Benz USA, LLC, 15-CV-04379-YGR, 2016 WL 7188030, at *4 (N.D. Cal. Dec. 12, 2016) (“the allegations of the SAC might state a simple claim for fraud or unfair business practices by their respective companies, but they do not allege that the individual defendants participated in a pattern of racketeering acts by a RICO enterprise.”).
Plaintiffs assert that their allegations are sufficient to establish each of the Other Director Defendants’ personal roles in the conduct of the Enterprise and that they are not trying to hold them liable simply because they were directors on JLI’s Board but because each is alleged to have “coordinat[ed] and caus[ed] the public dissemination of false, misleading or deceptive statements” in support of the RICO conspiracy. Philip Morris I, 449 F. Supp. 2d at 877. However, plaintiffs
4. Altria
Altria contends that plaintiffs fail to allege sufficient plausible facts regarding Altria’s role in the Enterprise during Spring 2017 through December 2018, noting first that no facts are alleged concerning any agreement by Altria to join the “existing” Enterprise framework or the role any Altria party undertook during this period exclusively for that Enterprise. The only allegations from this time period are that Altria and JLI had “confidential discussions” and that some JLI sales data was shared through Avail Vapor (CAC ¶ 423). Altria contends that those allegations are insufficient under
Altria dismisses other allegations identified by plaintiffs in their RICO opposition brief, one stemming from the pre-December 2018 period and the others from the post-December 2018 period, that it: (1) fraudulently acquired “shelf space” on behalf of the Enterprise, id. ¶ 427-31, 440; (2) executed “direct mail and email campaigns and related activities” for JUUL products, id. ¶ 436; (3) leveraged “Altria’s field sales force” to promote JUUL products to a broader footprint than JLI would have been able to reach independently, id. ¶¶ 436, 440; and (4) engaged in lobbying efforts with the FDA to ensure more people, including nonsmokers and youth, could gain access to and become addicted to JUUL. Id. ¶ 439.
Altria disputes the significance of the “shelf space” allegation, noting that plaintiffs elsewhere in the CAC allege that the purchase was for Altria’s own products that were still on the market in 2018 (although its own pod-based product was withdrawn in October 2018). Compare CAC ¶ 427 with ¶ 428. It then contends that the remaining allegations are simply activities that plaintiffs admit one or more of the undifferentiated Altria-defendant companies and their
Plaintiffs respond that, taking the inferences in their favor, their pre-December 2018 allegations (the shelf space, Altria’s possession of JLI sales data from 2017, and Altria’s efforts to keep mint on the market to benefit JLI) establish non-routine coordination between Altria and JLI in the pre-December 2018 period. They also argue that the services contract, under which Altria was reimbursed for the services its employees provided to JLI, provided only a “veneer of legitimacy” for Altria’s coordinated fraudulent conduct with JLI. Oppo. JLI/Altria RICO at 27. These are thin reeds on which to allege that Altria actively joined an existing RICO Enterprise and then “conducted or participated in the conduct of the ‘enterprise’s affairs,’ not just their own affairs.” Cedric Kushner, 533 U.S. at 161; see also In re Volkswagen “Clean Diesel” Mktg., Sales Practices, and Products Liab. Litig., MDL 2672 CRB (JSC), 2017 WL 4890594, at *16 (N.D. Cal. Oct. 30, 2017) (“But ‘some part in directing the enterprise’s affairs is required,’ [Reves, 507 U.S. at 179], and ‘[s]imply performing services for the enterprise,’ or failing to stop illegal activity, is not sufficient. Walter v. Drayson, 538 F.3d 1244, 1248-49 (9th Cir. 2008).”). Plaintiffs need to allege more.
Finally, Altria contends that plaintiffs do not sufficiently identify which of the four different Altria defendants named in the operative complaints but lumped together as “Altria” in the complaints was responsible for the specific Enterprise acts identified. This, according to Altria, is impermissible group pleading not permissible under
On amendment, plaintiffs shall add allegations regarding Altria’s conduct in support of the allegedly distinct Enterprise (as opposed to conduct which, even if coordinated with JLI, was simply in furtherance of its own economic and JLI’s ordinary business interests). Plaintiffs shall also identify which Altria defendant undertook what specific Enterprise conduct or explain why they cannot be more specific at this juncture.
E. Predicate Acts and Pattern of Racketeering
Plaintiffs allege that the defendants engaged in predicate acts of mail and wire fraud in violation of
These statements are all alleged to be part of the scheme: (1) misrepresenting the nicotine content, nicotine delivery profile, and risks of JUUL products; (2) misrepresenting to the public that JUUL was a smoking cessation tool; and, (3) using third-party groups to spread false and misleading narratives about e-cigarettes, and JUUL in particular, in order to grow the market for nicotine users, particularly among youth. CAC ¶ 167; see also id. ¶¶ 725-27, 735-40.
Defendants argue generally that the predicate wire and mail fraud acts are not pleaded with sufficient particularity or are otherwise insufficient.
1. Scheme to Defraud
Defendants raise a number of challenges to the alleged scheme to defraud. Many of them are variants on a theme addressed before, that defendants’ acts were not fraudulent but were regular business acts meant to ensure that JLI’s products could remain on the market and would have successful sales. But the issue of the distinctness of an Enterprise from an otherwise legitimate corporate organization is significantly different from the question of whether plaintiffs have adequately alleged a “scheme to defraud.” Alleged fraudulent conduct does not create a RICO enterprise. But that a distinct RICO enterprise is not supported by various fraud-based allegations does not, conversely, mean that those acts are not plausibly alleged to be fraudulent.
Separately, Bowen argues that allegations that defendants were generally undertaking conduct in order to increase market share and sell “legal goods” cannot constitute a scheme to defraud plaintiffs of property. See, e.g., Bitton v. Gencor Nutrientes, Inc., 654 Fed. Appx. 358, 363 (9th Cir. 2016) (unpublished) (where plaintiffs failed to allege defendants knew “results of the study were altered or that any Defendant knew that the study was either falsified or unreliable” allegations were insufficient to reasonably infer “that the conduct at issue—the purchase, marketing, and sale of legal goods by legitimate businesses— ‘is plausibly part of a fraudulent scheme.’”). Of course, the sale of JUUL products by itself is not the crux of the scheme to defraud. It is instead the intentional design and related fraudulent misrepresentations or omissions regarding its intentional addictiveness and method of nicotine delivery, combined with the intent, contrary to public statements, to grow the market for nicotine-addicted individuals (particularly
Plaintiffs have adequately alleged a scheme to defraud using mails and wires to conduct and further that fraudulent scheme.
2. Intent
An element of both the wire and mail fraud predicate act claims is the “specific intent to defraud.” Eclectic Properties, 751 F.3d at 997. The intent to defraud need not be shown for each alleged use of the mails or wires as long as there is evidence that the use of mails or wires was done to further the overarching scheme to defraud. See, e.g., U.S. v. Woods, 335 F.3d 993, 999 (9th Cir. 2003) (reaffirming that under the mail fraud statute the government is not required to prove any particular false statement was made, and there are “alternative routes” including “proof of a scheme to defraud that may or may not involve any specific false statements”). As explained in In re Chrysler-Dodge-Jeep Ecodiesel Mktg., Sales Practices, and Products Liab. Litig., 295 F. Supp. 3d 927, 977 (N.D. Cal. 2018), “[i]ntent to defraud may be inferred ‘by examining the scheme itself.’” Id. at 977 (quoting Eclectic Props., 751 F.3d at 997). Given the well-pleaded allegations that defendants knowingly participated in an inherently fraudulent scheme (to falsify emissions), “intent to defraud easily follows.” Id.
JLI and Altria do not contest intent, but Bowen, Monsees, and the Other Director Defendants do. For the same reasons that sufficient acts in support of conducting an enterprise have been alleged for Bowen and Monsees, as well as the existence of a scheme to defraud that stems in part from express acts and representations taken by Bowen and Monsees, the showing of intent is satisfied for both of them.34 As noted, neither of those elements has been shown with respect to Huh, Valani, and Pritzker; facts plausibly showing intent are for related reasons insufficiently alleged as to each of them.
a. Puffery or Opinion
A number of the defendants – in particular Bowen and Monsees – argue that predicate acts of mail or wire fraud cannot be based on public statements that amount in their view to opinion or puffery. For example, Monsees argues his August 2019 response to questions from the New York Times on behalf of JLI – that selling JUUL products to youth was “antithetical to the company’s mission” and which plaintiffs claim was a fraudulent statement – is protected opinion or non-actionable puffery. CAC ¶¶ 414, 752.
The trier of fact may determine what the true mission of the company or the distinct Enterprise within the company was, given defendants’ oft-repeated statements that JUUL is a smoking cessation device contrasted with its alleged intentional youth targeting to grow the market of nicotine-addicted users. The cases relied on by defendants are inapposite. See, e.g., Eclectic Properties E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 1000 (9th Cir. 2014) (finding statements by defendants “about the relative security of the investments constitute ‘puffing’ or related expressions of opinion that are common in sales and not actionable as fraud.”); Retail Wholesale & Dept. Store Union Loc. 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1276 (9th Cir. 2017) (plaintiffs could not base securities claim based on “inherently aspirational” code of conduct).
Similarly, defendants’ argument that a scheme to defraud and fraud-based predicate acts cannot be based on statements made to others (like media outlets or government officials) is not persuasive. The Supreme Court in Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 642 (2008), determined that a showing of first-party reliance is not required under the mail or wire fraud statutes. The Ninth Circuit’s recent decision in U.S. v. Miller, 953 F.3d 1095, 1101 (9th Cir. 2020), does not alter that conclusion because Miller simply reiterated that “a defendant must act with the intent not only to make false statements or utilize other forms of deception, but also to deprive a victim of money or property by means of those deceptions.” Here the intended victims, as consistently alleged, are the end consumers.
Plaintiffs also expressly rely on statements various defendants made at different times to Congress and regulators at the FDA. CAC ¶¶ 416,417. Defendants claim that these statements cannot, as a matter of law, be actionable frauds because they are petitioning conduct protected under the Noerr-Pennington doctrine. This “doctrine derives from the First Amendment‘s guarantee of ‘the right of the people ... to petition the Government for a redress of grievances.’
Under the Noerr–Pennington doctrine, “those who petition any department of the government for redress are generally immune from statutory liability for their petitioning conduct.” Sosa, 437 F.3d at 929. Defendants rely on Sosa, where the Ninth Circuit determined that plaintiff‘s lawsuit, which sought to impose RICO liability on DIRECTV for sending prelitigation demand letters, would “quite plainly burden DIRECTV‘s ability to settle legal claims short of filing a lawsuit” and therefore implicated the Noerr-Pennington doctrine directly. Id. at 932.35
Plaintiffs dispute the impact of Noerr-Pennington, arguing that the statements to Congress and the FDA were intentionally false statements that fall within Noerr-Pennington‘s “sham” exception. See Kearney v. Foley & Lardner, LLP, 590 F.3d 638, 645 (9th Cir. 2009) (noting that the Sosa court “suggested that the question of whether there would be absolute immunity for conduct including intentional misrepresentations or fraud should be analyzed under the sham exception“); see also Clipper Exxpress v. Rocky Mt. Motor Tariff Bureau, Inc., 690 F.2d 1240, 1253 (9th Cir. 1982) (“It is unquestionably true, as defendants assert, that Noerr-Pennington confers antitrust immunity for conduct genuinely intended to influence governmental action. Whether something is a genuine effort to influence governmental action, or a mere sham, is a question of fact.“).
Relatedly, defendants argue that plaintiffs’ “lulling” of regulators theory – that JLI and Altria pretended to be concerned about youth-use but in reality were attempting to placate the FDA and postpone FDA action while maintaining JUUL on the market generally and mint as a flavored-youth-preferred pod specifically – is untenable under a recent Supreme Court decision, Kelly v. U.S., 140 S. Ct. 1565 (2020). In Kelly, the Court considered a wire fraud conviction, noting that
Here, however, the scheme was to secure the money and property of the end consumers, in particular the new and youth users who were not previously addicted to nicotine. Defendants did so by allegedly lulling Congressional legislators and the regulators at the FDA into inaction, or more limited action, to allow their products to remain on the market. Kelly does not foreclose the plaintiffs’ RICO claim.
Defendants likewise rely on Buckman Co. v. Plaintiffs’ Leg. Comm., 531 U.S. 341, 353 (2001) to argue that “fraud on the agency” cannot be a predicate wire or mail fraud act. In Buckman, however, the question was preemption of a claim based on a duty created “solely” by virtue of the FDCA disclosure requirements. That is not the basis of the mail or wire fraud claims here. There is no claim that the allegedly fraudulent statements made to the government officials were specifically required by Congress or the FDA. Indeed, the statements were voluntarily made by the speakers with an alleged aim to deter or defer government action, placate the public, and preserve JLI‘s ability to continue to sell mint pods and continue to grow the youth market (contrary to its disclosed intent).37 See In re Chrysler-Dodge-Jeep Ecodiesel Mktg., Sales Practices, and Products Liab. Litig., 295 F. Supp. 3d 927, 995 (N.D. Cal. 2018) (distinguishing Buckman where “the gravamen of the affirmative misrepresentation claims is that Defendants deceived consumers. Thus, the fraud claims here do not arise ‘solely by virtue of’ noncompliance with FAA emissions rules; they arise out of the alleged deceit practiced on consumers by Defendants.“); Ferrari v. Nat. Partners, Inc., 15-CV-04787-LHK, 2016 WL 4440242, at *5 (N.D. Cal. Aug. 23, 2016) (allowing fraud on the FDA-type claims to proceed and recognizing ”Buckman addresses federal preemption of claims, not of individual allegations.“). Buckman
c. Acts Committed by Enterprise or by Co-Conspirators Individually
Defendants argue, generally, that plaintiffs have failed to show that each of them committed at least two predicate acts of mail or wire fraud, but that is not the standard. Instead, plaintiffs need only allege that each defendant was “(1) a knowing participant in a scheme to defraud, (2) that [defendant] participated in the scheme with the intent to defraud, and (3) that a co-schemer‘s acts of mail and wire fraud occurred during [defendant‘s] participation in the scheme and were within the scope of the scheme.” In re Volkswagen “Clean Diesel” Mktg., Sales Practices, and Products Liab. Litig., MDL 2672 CRB (JSC), 2017 WL 4890594, at *13 (N.D. Cal. Oct. 30, 2017) (relying on United States v. Stapleton, 293 F.3d 1111, 1117 (9th Cir. 2002)); see also In re Chrysler-Dodge-Jeep Ecodiesel Mktg., Sales Practices, and Products Liab. Litig., 295 F. Supp. 3d 927, 979 (N.D. Cal. 2018) (“When the predicate acts are acts of mail or wire fraud, however, the Ninth Circuit has held that ‘knowing participants in the scheme are legally liable for their co-schemers use of the mails or wires‘” and requiring only plausibly supported facts “that each Defendant was a knowing participant in the scheme to defraud.“); Dufour v. BE LLC, C 09-03770 CRB, 2010 WL 2560409, at *11 (N.D. Cal. June 22, 2010) (“[I]t is not necessary that all named defendants themselves used the wires. . . . Therefore, it is not necessary for [defendant] to have sent any messages himself; it is sufficient that he knew of the scheme and participated in it.“).
Bowen. Bowen argues that because there are no particularized allegations that he committed any particular act of mail or wire fraud, much less that he participated in the marketing or commercial messaging of the JUUL products other than the unsupported allegation that Bowen had, along with Monsees and the Other Director Defendants, “final say” over marketing materials,
Monsees. Monsees also points out that plaintiffs specifically identify only two statements from him as predicate Enterprise acts. The first was the written testimony submitted to Congress in July 2019, where Monsees stated that JLI never wanted to capture non-nicotine addicted or youth users, which Monsees argues is protected under the Noerr-Pennington doctrine. CAC ¶ 752. I addressed that argument earlier.38 He also argues that because the aim of this statement is to influence Congress, and not to obtain money or property from the government, it cannot constitute mail or wire fraud. That argument, too, is rejected above. The second alleged statement is his August 2019 statement to the New York Times that selling to youth was “antithetical” to JLI‘s mission. CAC ¶ 752. Monsees argues that it is protected opinion and “objectively true” given JLI‘s mission statement expressing its intent to “combat underage usage of our products.” CAC ¶ 77. These arguments were likewise addressed above and at most raise disputes of fact not appropriate for resolution now.39
Other Director Defendants. The Other Director Defendants point out that there are no allegations that any of them directly engaged in any of the predicate acts or had knowledge of others doing so. Again, that is not the standard. But because plaintiffs have failed (at this juncture) to plausibly allege facts showing that the Other Director Defendants were knowing participants in the scheme to defraud and that they personally participated in the scheme with the intent to defraud, the RICO claim has not been adequately alleged against each of them.
Altria. Altria separately contends that predicate acts of mail fraud cannot be based on
JLI. Finally, JLI contends that the predicate acts from 2015 fall outside RICO‘s statute of limitations. That argument depends on whether the “injury discovery rule” tolls the statute of limitations and can be addressed on summary judgment.
4. Pattern
A RICO pattern consisting of different acts by the Enterprise is shown where the acts are “related” and extend over a “substantial” period of time. Howard v. Am. Online Inc., 208 F.3d 741, 750 (9th Cir. 2000).
a. Relatedness
Various defendants argue that the specific isolated acts with which they are charged are too distinct, separated by too much time, or otherwise not sufficiently related to other acts to be part of the requisite “pattern.” So, for example, Monsees challenges the relatedness of his alleged specific predicate acts to the pattern of Enterprise acts as a whole. But even if Monsees‘s acts were made through different channels and made to different audiences (comments to Congress, regulators, the news media, or the public), the goal of the scheme to defraud as consistently alleged by plaintiffs remains plausibly the same: to lull the public and government into false beliefs about the JUUL product and defendants’ intent while defendants worked (contrary to those public statements) to increase nicotine addiction and specifically target the youth market.
b. Continuity
Plaintiffs contend that: (i) by identifying predicate wire and mail fraud acts over a course of five years, they have alleged “closed-ended” continuity; and (ii) by alleging that some of the misrepresentations continue to this day, they have likewise alleged “open-ended” continuity. See Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1526-27 (9th Cir. 1995). Monsees challenges the showing of both closed-ended and open-ended continuity by focusing exclusively on the two predicate acts he is alleged to have personally committed (to Congress and the New York Times). He points out that those two acts do not span a “substantial” period of time (generally recognized at 12 months
F. Proximate Cause and Injury to Money or Property
Defendants contest whether plaintiffs in the CAC and PECs have alleged sufficient proximate causation under the heightened RICO standard, which bars “‘suits for alleged harm that is ‘too remote’ from the defendant‘s unlawful conduct‘” and instead demands some “‘direct relation between the injury asserted and the injurious conduct alleged.‘” Painters and Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharm. Co. Ltd., 943 F.3d 1243, 1248–49 (9th Cir. 2019) (quoting Lexmark Int‘l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 133 (2014) and Holmes v. Sec. Inv‘r Prot. Corp., 503 U.S. 258, 268 (1992)). However, plaintiffs “are not required to show that each individual predicate act caused them an injury, but rather that the pattern of racketeering activity did.” Just Film, Inc. v. Merchant Services, Inc., C 10-1993 CW, 2012 WL 6087210, at *12 (N.D. Cal. Dec. 6, 2012).
Plaintiffs generally allege that the purpose of the Enterprise was “maintaining and expanding the number of nicotine-addicted e-cigarette users in order to ensure a steady and growing customer base, including by ... addicting children to nicotine.” CAC ¶ 750. In furtherance of the Enterprise‘s common purpose, defendants “made false and misleading statements directly to the public,” leading them to purchase JUUL. CAC ¶ 763. As such, plaintiffs contend that they are the direct victims of defendants’ alleged fraudulent scheme. See, e.g., Painters, 943 F.3d at 1251 (finding proximate cause based on allegations that defendants actively concealed the risk of a product to sell more to unsuspecting persons and increase revenue and that plaintiffs would not have purchased the product but for the deception).
1. CAC
a. Directness
JLI and Altria argue, first, that the alleged deception to regulators cannot support “direct” proximate causation because any harm to plaintiffs from those statements resulted from the intervening acts or inaction of the regulators, not the Enterprise. JLI RICO Mot. at 12-13; see also
In addition, the line of cases on which defendants rely – rejecting proximate causation where the RICO conduct alleged most directly impacted the government – do not control here. See, e.g., Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006) (alleged injury to the business caused by competitor unlawfully selling products free of sales tax and submitting fraudulent sales tax returns was not sufficiently direct to show proximate cause because it was the government‘s loss of sales tax that was primary and direct injury); Rezner v. Bayerische Hypo-Und Vereinsbank AG, 630 F.3d 866 (9th Cir. 2010) (purchasers of tax shelters could not show RICO proximate cause based on allegations that defendants engaged in scheme to defraud United States of tax revenue through fraudulent tax shelters).40 Here, the aim of the scheme and those who most directly suffered the harm plaintiffs allege, for purposes of the CAC allegations, were the end consumers of JLI‘s products.
Closer to the posture of this case is In re Chrysler-Dodge-Jeep Ecodiesel Mktg., Sales Practices, and Products Liab. Litig., 295 F. Supp. 3d 927, 967 (N.D. Cal. 2018). In Ecodiesel, the plaintiffs alleged that defendants concealed that they had installed devices that reduced the effectiveness of the promised and government-regulated emissions levels and based their RICO claim, in part, on a scheme to defraud the agencies that regulated emissions. Id. at 965. The Hon. Edward M. Chen persuasively distinguished Anza and Rezner (where government entities, not the
That some of the predicate acts or fraudulent statements were made to regulators did not break the causal chain for purposes of RICO.
b. Benefit of Bargain
In the CAC, plaintiffs allege that defendants’ conduct caused “the RICO Class members to purchase JUUL products that they would not have purchased, or—in the alternative—to pay more for JUUL products than they would have otherwise paid.” CAC ¶ 762; see also, e.g., CAC, App. A ¶¶ 9, 22, 37, 48, 63, 79, 95, 108, 119. This lost money, plaintiffs argue, is cognizable “lost money or property” under RICO. See, e.g., Painters and Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharm. Co. Ltd., 943 F.3d 1243, 1247 (9th Cir. 2019) (plaintiffs sought “to recover economic damages under RICO for the payments they made to purchase Actos under the assumption that it was a safe drug, which they allege they would not have purchased had they known that Actos” was not safe).
While JLI contests whether these “expectation” or “benefit-of-the-bargain” damages are a cognizable RICO injury, in the Ninth Circuit and this District they are. Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 976 (9th Cir. 2008) (“a consumer who has been overcharged
2. PECs
In the PECs, Three Village and the other public entities generally allege that “Defendants intentionally sought to reach into schools . . . to continue growing JLI‘s youth customer base,” TVC ¶ 701, and “intentionally addict[ed] . . . youth in [Three Village]‘s schools.” TVC ¶ 702. Defendants’ conduct “required [Three Village] to expend its limited financial and other resources to mitigate the health crisis of youth e-cigarette use” in Three Village schools, TVC ¶ 702, forcing Three Village to: conduct staff training on e-cigarette use, TVC ¶ 599; hold assemblies to educate students and parents on the dangers of e-cigarette use, TVC ¶ 600; modify its health curricula to focus on the dangers of e-cigarette use, TVC ¶ 601; hire a new student assistant counselor, TVC ¶ 603; pay the costs of tutoring services for suspended students, including transportation, TVC ¶ 606; purchase e-cigarette detectors and surveillance cameras, TVC ¶ 607; and purchase anti-e-cigarette signage for school property. TVC ¶ 607.
Defendants raise separate proximate cause arguments with respect to the damages alleged in the PECs. First, they argue that the proximate cause between the government entities’ damages and the defendants’ acts is not “direct” enough because the claims rely on the intervening consumers’ conduct. For example, in Oregon Laborers-Employers Health & Welfare Tr. Fund v. Philip Morris Inc., 185 F.3d 957, 963 (9th Cir. 1999), the Ninth Circuit found too indirect a health care trust funds’ RICO claim and attempt to recover damages for smoking-related costs of health
Defendants contend that the PEC damages are like the health care trust funds‘, wholly dependent on actual damages suffered by users of JLI‘s products and, therefore, too remote to satisfy proximate cause and establish standing. However, while the public entities’ damages would not have been incurred but for defendants’ scheme to defraud and create a youth market as alleged, significant distinctions between the PEC allegations and the health care trust fund cases make that line of authority inapposite. The most significant of those distinctions is that the damages incurred by end-users are wholly distinct from the damages incurred by the PECs. Even if the consumers in the end are unable to prove any benefit of the bargain damages or if some personal injury plaintiffs are unable to prove causation between use of JUUL and their injuries, that would not undercut the damages sought by the PECs, such as the costs of hiring and training staff to address e-cigarette use, development of programs and materials to address e-cigarette use, costs of tutoring and other services for students who were disciplined for e-cigarette use, physical alterations to their properties to address and deter further e-cigarette use, and disposal of the
Second, defendants argue that the damages each of the PEC‘s seek are not recoverable as a matter of law under Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 975 (9th Cir. 2008). In that case, the County alleged that it was damaged by having to spend millions of dollars on health care and criminal justice services for the illegal immigrants who have been employed by the defendants in violation of federal law. The Ninth Circuit held that was insufficient “injury to” the County‘s property noting first, that the law “commonly distinguishes between the status of a governmental entity acting to enforce the laws or promote the general welfare and that of a governmental entity acting as a consumer or other type of market participant.” Id. at 976. Providing health care and criminal justice services were necessary to “enforce the laws or promote the public well-being” and normal governmental acts that did not constitute injury to its property cognizable under RICO.
Plaintiffs contend that the expenditures here – wholly new or expanded services necessitated solely by the crisis of youth use of JUUL products – were “extraordinary” and not the sort of typical and expected government expenditures at issue in Canyon County. This distinction was accepted by Judge Polster in In re Natl. Prescription Opiate Litig., 1:17-MD-2804, 2018 WL 6628898, at *10 (N.D. Ohio Dec. 19, 2018) (distinguishing Canyon County given “the scope and magnitude of the opioid crisis—the illicit drug market and attendant human suffering—allegedly created by Defendants have forced Plaintiffs to go far beyond what a governmental entity might ordinarily be expected to pay to enforce the laws or promote the general welfare. Plaintiffs have been forced to expend vast sums of money far exceeding their budgets to attempt to combat the opioid epidemic.“).
A recent decision from the Hon. Charles R. Breyer in this District rejected that distinction and instead concluded that Canyon City established a bright line rule and that government entities
However, the PECs here also allege that they have suffered damage directly to their physical property and that suffices to confer standing. For example, Three Village alleges that hazardous products have been wrongfully disposed of as regular waste in Three Village schools and littered on Three Village property, and that Three Village has had to make physical modifications to its property by installing e-cigarette detectors, cameras, and anti-vaping signs around its property. TVC ¶¶ 607, 609. The disposal of hazardous waste is similar to an alleged property injury that Judge Breyer rejected as too indirectly caused to satisfy proximate cause in City and County of San Francisco v. Purdue Pharma, 2020 WL 5816488 * 24. In that case, however, there were many more interim links between the defendants’ conduct (sale and creation of illegal secondary market for opioids) and the plaintiff‘s alleged harm (disposal of needles used to inject crushed opioids) than exist here. Id. at *24 (“physicians (Link 1), pharmacists (Link 2), and patients (Link 3) who then illegally misuse opioids, improperly discard the needles, and thus damage city-owned property and businesses (the harm)“). The allegations in this case are that defendants not only intentionally targeted youth but also conducted programs on school grounds. Unlike in the Purdue Pharma case, there are no issues with interim links of physicians and pharmacists (although the youth users had to buy from others or circumvent age-checking requirements – conduct which plaintiffs allege defendants intended to occur) and the use of the products was as intended.
At this juncture, the allegations regarding injury to the PECs’ properties suffice for PEC standing under RICO. The potential damages available to them (if plaintiffs are otherwise able to plausibly allege a RICO claim) are better determined on a full, evidentiary record.
Altria separately argues that plaintiffs fail to adequately allege reliance, and therefore, proximate causation and sufficient injury against it, because at least 34 of the 107 putative class representatives began purchasing JUUL products before Spring 2017, the earliest the Altria defendants were alleged to have engaged in the RICO Enterprise, and almost all began using JUUL products before Altria‘s first investment in JLI in December 2018. Dkt. No. 632 at 36 (noting that only 3 class representatives allege they started using JUUL products in 2019).
This argument fails because the Supreme Court in Bridge43 clarified that individual reliance is not necessary for mail and wire fraud and because liability under RICO is purposefully “joint and “several”44 this argument fails. At this juncture, however, it is unnecessary to reach or resolve this issue because as long as there is standing for some plaintiffs, that is sufficient. As Altria is alleged to have joined the RICO conspiracy under
G. Conspiracy
Finally, each defendant argues that because plaintiffs have failed to allege a substantive violation of RICO, the RICO conspiracy claim fails as a matter of law. At this juncture, that is correct, but plaintiffs are given leave to amend to attempt to plausibly allege the underlying RICO claim.
Each of the Officer and Director defendants also argues that the RICO conspiracy claims are not sufficiently stated because plaintiffs allege no facts plausibly demonstrating that each defendant agreed with specific others to commit the fraudulent acts or that he intended to commit them himself. These arguments are largely derivative of the “we were only acting in JLI‘s or our
For the foregoing reasons, each of the defendants’ motions to dismiss the RICO claims is GRANTED. Plaintiffs are given leave to amend the deficiencies identified.
IV. MOTIONS TO DISMISS UCL/CALIFORNIA CLAIMS
Defendants move to dismiss the fraud, consumer protection, implied-warranty, and unjust enrichment claims asserted in the CAC on behalf of the subclass of California consumers represented by Bradley Colgate and minors C.D. and L.B. (collectively, California plaintiffs).46
In Appendix A to the CAC, plaintiffs identify “[a]llegations specific to each plaintiff.” CAC ¶ 11. These plaintiffs allege that in “purchasing JUUL products, the Plaintiffs relied on the misrepresentations and/or omissions. Reasonable consumers would have been expected to have relied on the misrepresentations and omissions.” Id. ¶¶ 644, 663 (plaintiffs relied), 672, 683 (plaintiffs justifiably relied); see also ¶¶ 813, 864, 898, 913, 948, 963, 1013, 1061, 1122, 1158, 1172, 1222, 1234, 1283, 1299, 1360, 1409, etc. (same).
Colgate had been a combustible cigarette smoker for at least seven years before he first purchased JUUL products in or around October 2017, having seen social media advertisements and “sponsored stories” encouraging the switch to JUUL from combustible cigarettes, advertisements characterizing JUUL as an “alternative” to cigarettes (which he understood meant not unhealthy and less addictive than cigarettes), and advertisements describing kits customized to his lifestyle. He also started seeing JUUL product displays in retail establishments, noting that JUUL products were often located on instead of behind counters with cigarettes. See generally CAC App‘x ¶¶ 203-214. He specifically alleges: “None of the advertisements, in-store promotions, or labels Colgate saw adequately disclosed the nature or addiction risks of JUUL‘s products, the actual amount of nicotine in or delivered by JUUL‘s products, that the JUUL was
C.D. is 16 years old and alleges that before he had used JUUL he had seen point of sale (POS) materials that “featured images of JUUL‘s multicolored fruit- and dessert-flavored pods and offers of discounts on the JUUL” kits. “The representations and omissions in JUUL‘s in-store promotions materially impacted . . . C.D.‘s assessment of, and eventual decision to use, JUUL products.” Following his older brother‘s use, C.D. started using JUUL and bought a JUUL device from a classmate who had a spare for sale. C.D. alleged that but for JUUL‘s social media advertising, he would not have been exposed to, and would not have used, JUUL products. He describes some of the JUUL social media posts he saw, and also social media posts by third parties (showing that JUUL was a “cool” thing to do) and sites advertising JUUL products without or with inadequate age verification. He states that he did not know that the content he saw was being created, distributed, and promoted by JUUL vendors or paid influencers whose aim was to promote JUUL use to adolescents and profit from their addiction. He also alleges that he has been receiving a steady stream of promotional e-mails from JUUL for months and that his Instagram and Snapchat streams are “bombarded” with advertisements for JUUL products. Finally, he alleges that none “of the advertisements, in-store promotions or JUUL labels . . . C.D. saw adequately disclosed the nature or addiction risks of JUUL‘s products, the actual amount of nicotine in or delivered by JUUL‘s products, that the JUUL was engineered to deliver nicotine rapidly and in great quantities, that the JUUL is capable of delivering nicotine more rapidly and in greater quantities than a cigarette, or that use of JUUL products poses significant health risks. Nor did they indicate that JUUL was an age- restricted product. The representations and omissions in JUUL‘s advertising and POS promotions materially impacted . . . C.D.‘s assessment of the flavored JUULs [he] eventually decided to try.” CAC Appx. A ¶¶ 285-299.
L.B. alleges that she is currently 16 years old and started using JUUL in 2016, shortly after her 13th birthday. She learned about JUUL from her friends at school and through JUUL‘s point-of-sale materials, which she saw in stores near her home, that showed JUUL‘s flavored pods and
A. Common Law Fraud – California Plaintiffs
1. Affirmative Misrepresentations and Justifiable Reliance
JLI argues that the California plaintiffs have failed to sufficiently identify the specific affirmative representations on which they justifiably relied as required for common law fraud and that any representations currently identified are not actionable. Plaintiffs respond that the specific deceptive and misleading statements seen by the California plaintiffs specifically included that JUUL products were smoking cessation devices, were reasonable alternatives to cigarettes, and that a pod of JUUL was equivalent to one pack of cigarettes. CAC ¶¶ 677, 679.
As an initial matter, JLI challenges the adequacy of the identification of the actual representations on which they claim each California plaintiffs relied. The advertisements and marketing materials that each California plaintiff saw (or were similar to the types of advertisements and marketing materials each of them saw) are identified for each in the CAC, Appendix A. However, C.D. and L.B. do not clearly specify what text in those or similar advertisements and marketing materials they contend are express affirmative representations. As plaintiffs will be given leave to amend to rectify some problems with their current allegations (see
As to Colgate, JLI argues that advertisements that “vaguely” encourage people to “switch” to JUUL or that describe JUUL products as an “alternative” to cigarettes cannot constitute false representations because they are too vague, too subjective, or puffery and, therefore, not actionable as a matter of law.48 This issue was briefly addressed in Colgate II. There, in a footnote, I provided the following guidance:
JUUL‘s use of common advertising practices and its ads that follow the predominant marketing aesthetic of the last few years (“bright” colors, “clean lines,” “minimal text,” “eye-catching graphics,“) would not by itself constitute any sort of misrepresentation. Also, claims based on themes and vague terms in JUUL‘s advertising are, as JUUL argues, nothing more than non-actionable puffery. In re Fontem, 2016 WL 11503066, at *9 (C.D.Cal. Apr. 22, 2016) (“Courts enter dangerous territory when they consider representations actionable based not on what they actually say, but on what plaintiffs claim defendants seem to be stating. This goes beyond viewing the allegations in the light most favorable to the plaintiff.“).
Colgate II, 402 F. Supp. 3d at 748. I did not rule on the use of specific phrases in JLI‘s marketing materials. Nor did I rule out the relevance of the overall features of an advertisement (including its use bright or eye-catching colors) to the context of whether an advertisement, when considered in whole, is misleading or false. Instead, I warned plaintiffs that design elements would not “by themselves” constitute an actionable misrepresentation.49
Turning to puffery, this is not a product comparison case where plaintiffs criticize JLI for
For similar reasons, JLI is incorrect that Colgate cannot, as a matter of law, allege justifiable reliance because no reasonable reader could agree with his inference that advertisements encouraging him to switch to the alternative JUUL product from traditional tobacco products could not support a reasonable inference that JUUL was attempting to convince consumers its product was healthier or less harmful. Atari Corp. v. Ernst & Whinney, 981 F.2d 1025, 1031 (9th Cir. 1992) (affirming summary judgment determination that plaintiff “possessed facts demonstrating that the representations upon which it claims to have relied were ‘patently and
Finally, JLI argues that C.D. and L.B. fail to allege specific facts showing actual reliance on defendants’ advertisements and marketing materials when they instead relied on peer pressure. This argument, like the one raised as to Colgate, should be made after discovery and on an evidentiary record. That peer use is one aspect of these minors’ allegations of how and maybe why they started using JUUL does not defeat reliance because they also attest to the advertising and marketing materials on which they relied. Whether those materials were part of the “immediate cause” of their initial or continued use can be tested on an evidentiary record. See City Sols., Inc. v. Clear Channel Commun., 365 F.3d 835, 840 (9th Cir. 2004) (“Because of the highly subjective nature of a causation analysis, the Supreme Court of California has instructed that the question whether a party detrimentally relied on the misrepresentation of another party is properly left to a jury.“).
2. Omissions and Justifiable Reliance
JLI challenges the plaintiffs’ fraudulent omissions claims by noting the lack of a transaction between each of the California plaintiffs and JUUL and arguing that they fail to allege justifiable reliance.52 JLI argues plaintiffs’ fraud claim cannot be based on omissions because,
This challenge fails. Where the allegedly undisclosed defect creates a risk of bodily injury, a manufacturer has a duty to disclose a defect that poses an unreasonable safety risk even if that manufacturer did not have a transactional relationship with the end user. Hamm v. Mercedes-Benz USA, LLC, 5:16-CV-03370-EJD, 2019 WL 4751911, at *4 (N.D. Cal. Sept. 30, 2019); see also Reniger v. Hyundai Motor Am., 122 F. Supp. 3d 888, 897 (N.D. Cal. 2015) (rejecting the requirement of a transaction, as where, as here, Plaintiffs allege a safety defect that a reasonable consumer would find material.). Here, plaintiffs adequately allege defects that create an unreasonable risk to their personal safety, even if they disclaim (in the CAC) claims based on their personal injuries as opposed to their economic loss.54
As a fallback to its transaction argument, JLI contends that it was not under a duty to disclose because the allegedly omitted information was not within its exclusive knowledge but was publicly available to plaintiffs through studies and news articles demonstrating the dangers of ENDS generally (for example linking ENDS use to lung injuries and a CDC report addressing the addictive properties of ENDS) and JLI in particular (noting the CAC cites a publicly-available study disclosing that JUUL delivers more nicotine per puff than a Marlboro cigarette). CAC ¶ 105. See, e.g., In re NJOY, Inc. Consumer Class Action Litig., 2015 WL 12732461, at *16 (C.D. Cal. May 27, 2015) (plaintiffs could not rely on a 2009 FDA study regarding toxins in e-cigarettes because the study was publicly available for three years or more and defendants, therefore, did not have exclusive knowledge of those facts at the time of plaintiffs purchases); Andren v. Alere, Inc., 207 F. Supp. 3d 1133, 1143 (S.D. Cal. 2016) (plaintiffs allegations re specific product defect undermined by citation to publicly available studies and FDA warning letter and FDA recall notices regarding same defect). JLI asserts that the omissions-based claim fails given this publicly available information and the failure of plaintiffs to allege specifically what material information JLI had within its exclusive knowledge.
However, plaintiffs plausibly allege that JLI had exclusive and superior knowledge of specific and undisclosed or not adequately disclosed information, including the results from the Phase 0 study (showing heightened nicotine delivery, CAC ¶¶ 100-103) at the same time that it was marketing its products without that disclosure, and likewise falsely stating on its packages that a pod was equivalent in terms of nicotine to a pack of cigarettes. Plaintiffs contend that information on the market about ENDS generally and JUUL specifically was not specific enough about the method of nicotine delivery and potency of JUUL; it mostly concerned the known dangers of nicotine and its addictiveness. Because the disclosures identified by JLI did not disclose the specific heightened nicotine delivery and potential for heightened addictiveness of
The allegations of exclusive or superior knowledge and what JLI contends was publicly disclosed and available to consumers are materially different from the allegations considered by the Hon. James Donato in Harris v. R.J. Reynolds Vapor Co., 15-CV-04075-JD, 2017 WL 3617061, at *2 (N.D. Cal. Aug. 23, 2017). There, plaintiffs broadly alleged that defendants failed to disclose that ENDS had risks or were comparable in those risks to traditional tobacco products. But because plaintiffs had cited numerous studies and reports broadly disclosing risks with ENDS (and defendant itself expressly disclosed to consumers that VUSE products are tobacco products, and that no tobacco product is safe or without risk), plaintiffs omissions-based fraud claim was self-defeating. Here, plaintiffs assert that the only source that specifically addressed the addictiveness of JUUL - which both sides agree is different in design and delivery than other ENDS - was published in August 2019, well after the California plaintiffs had started their JUUL use. CAC ¶ 105 & n.106.
JLI contends that this narrow category of JUUL-specific information - the design and potency of JUUL - was in fact publicly disclosed in its patent application. Plaintiffs acknowledge and expressly allege that the results of the Phase 0 study were disclosed in the ´895 Patent (CAC ¶¶ 101-102). But this does not defeat the omissions-claim. Disclosure to an agency and arguably the public in the complex prose of a patent disclosure does not translate to a disclosure that any of
Under the third asserted theory, JLI contends that plaintiffs have not identified any partial disclosures other than the puffery of the switch and alternative marketing materials identified by Colgate that could trigger a responsibility to disclose omitted information.55 But, as noted above, the switch and alternative statements may, in context, be actionable and not mere puffery or opinion. Plaintiffs have also alleged that the one pod is equivalent to a pack of cigarettes in terms of nicotine delivery can also be misleading given JUULs otherwise not publicly acknowledged different and more potent delivery method.56
As to reliance for omissions-based claims, if the withheld information was material reliance is presumed. See, e.g., Daniel v. Ford Motor Co., 806 F.3d 1217, 1225 (9th Cir. 2015) (That one would have behaved differently can be presumed, or at least inferred, when the omission is material and [a]lleged defects that create unreasonable safety risks are considered material). The allegedly withheld information at issue satisfies the materiality hurdle as a matter of pleading. The particular significance of withheld information to named plaintiffs is a highly fact-based analysis typically resolved based on an evidentiary record. See, e.g., City Sols., Inc., 365 F.3d at 840.
3. Damages
JLI argues that the fraud claims must be dismissed because none of the California plaintiffs alleges damages from the misrepresentations with sufficient specificity, offering only identical and conclusory allegations about their harm (at most, disclaiming nicotine addiction personal injury claims, CAC ¶ 3371) and providing no quantity or measure of resulting damages. It cites no caselaw requiring - at the pleading stage - a detailed disclosure of damages. Plausible allegations of damages are required and are made for each of the California plaintiffs. Damages may be tested after expert and fact discovery is adduced.57
Dismissal with leave to amend for C.D. and L.B.s affirmative misrepresentations claim is GRANTED. JLIs motion to dismiss the California fraud claims is otherwise DENIED.
Plaintiffs assert two theories under their breach of implied warranty of merchantability claim asserted only against JLI. First, the products do not conform to statements made on their labels. Second, they are not merchantable for the purpose for which they are sold and are not fit for ordinary use. CAC ¶ 689.
1. Privity with JLI
JLI moves to dismiss the implied warranty claim, arguing that because none of the California plaintiffs purchased from JLI, none can establish privity. Plaintiffs do not contest that privity is typically required but insist that two exceptions apply, the third-party beneficiary exception and the foodstuff exception.
As my more recent decisions have recognized, the third-party beneficiary exception has been accepted by California Courts of Appeal. See Zeiger v. WellPet LLC, 304 F. Supp. 3d 837, 854 (N.D. Cal. 2018) (collecting cases). Under that exception, plaintiffs contend and defendants do not contest that Colgate was an intended purchaser and did purchase JUUL products, even if through retailers and not directly from JLI. The real dispute is over the minors, C.D. and L.B., whom JLI argues cannot be intended third-party beneficiaries since minors were not legally
2. Non-Merchantability and Causation
JLI asserts that plaintiffs claim under both of their theories of breach fails because (1) plaintiffs fail to allege that they relied on the container or label of the JUUL products and (2) plaintiffs cannot plausibly allege that the JUUL products are not fit for their ordinary purpose (as a safer alternative to cigarettes) because that theory is based on plaintiffs subjective expectations of use. Under the first theory, the parties dispute whether reliance is required for an implied warranty of merchantability claim (as opposed to other variants of warranty claims). Compare CA Oppo. at 19 (citing CACI 1231); with JLI CA Reply at 9 (citing two C.D. Cal. cases dismissing implied warranty claims where plaintiffs did not allege they saw particular statements). However, the CACI instruction identified by plaintiffs does not include within its scope a theory based on statements made on a products container or label. Absent other persuasive authority, I conclude that plaintiffs must identify the specific statements on the label or container that they saw and that would breach the implied warranty in order to proceed under this theory. Plaintiffs may attempt to plead those facts on amendment.
I have already considered the second theory and found it adequately pleaded. See Colgate II, 402 F. Supp. 3d at 757 (finding that the allegations about the pharmacokinetics of JUULs
C. UCL/FAL
Unlike common law fraud and breach of the implied warranty - claims that were asserted only against JLI - each of the moving defendants is named as a defendant under plaintiffs UCL and FAL claims. Each asserts slightly different arguments in addition to joining each others arguments.
1. Stating a UCL Claim
a. JLI
JLI argues that the California plaintiffs have failed to state a claim under any of the three disjunctive prongs of the UCL. They contend that no fraud-prong claim has been alleged because plaintiffs failed to adequately allege common-law fraud. That argument was rejected above. JLI contends that plaintiffs cannot state a claim under the unlawful prong because: (a) plaintiffs have failed to plead and cannot plead their RICO claim; (b) the Magnuson-Moss Warranty Act (MMWA) claim fails for the same reason as the implied warranty claim; (c) plaintiffs have failed to allege a Stake Act Claim under
Finally, JLI argues that plaintiffs have failed to allege an unfair prong claim under the balancing test. Given how the California claims currently stand, because the fraud and illegal prongs have been adequately alleged, I need not separately address the unfairness prong as to JLI
b. Altria
Plaintiffs confirm that they are asserting only an unfairness-prong claim under the UCL against Altria based on Altrias conduct related to youth marketing (the phrase preferred by Altria) or youth targeting (the phrase preferred by plaintiffs). CA/UCL Oppo. at 28-31. Altria contends, however, that plaintiffs fail to allege sufficient facts under
As an initial matter, the parties dispute whether
As the second, more substantive matter, Altria contends that the 157 paragraphs describing the defendants youth marketing conduct barely mention Altria and nowhere allege that Altria marketed, advertised, or promoted JUUL products directly to youth. According to Altrias review of the CAC, the only marketing Altria is alleged to have undertaken for JUUL products was in
I disagree. In addition to the preserving mint, shelf-space, and make the switch allegations, there are allegations regarding Altrias direct conduct and own acts that plaintiffs allege directly support an inference of unfair youth-targeting. See, e.g., CAC ¶¶ 395, 397 (alleging that JLI provided Altria a marketing list including minors); ¶ 412 (Altria publicly feigned ignorance over JUULs youth marketing intents and acts); ¶¶ 416, 417 (Altrias statements to the FDA and Congress).60
Plaintiffs characterize the totality of the allegations regarding Altrias own conduct as a significant part of the coordinated (starting in 2017) scheme of youth targeting given Altrias knowledge of JLIs youth marketing through the joint relationship with Avail Vapor and its agreement to secure the shelf space, preserve mint, and then (after December 2018) provide services to JLI in order to preserve or grow youth use of JLIs products. See CAC ¶¶ 419-422, 425, 427-432, 432-441, 473, 489-495.61 These allegations regarding conduct over which Altria had direct control are sufficient, at this stage, to sustain the unfair-prong UCL claim against Altria.62
c. Officers and Directors
Each of the Officer and Director Defendants moves to dismiss the UCL claim because he cannot be personally liable merely due to his status as either co-founder, officer, or member of the
Bowen, Monsees, and the three Other Director Defendants rely on the discussion of the boundaries of UCL liability in Emery v. Visa Internat. Serv. Ass‘n, 95 Cal. App. 4th 952, 960 (Cal. App. 3d Dist. 2002), where the court reminded plaintiff that his unfair practices claim under section 17200 cannot be predicated on vicarious liability and [a] defendants liability must be based on his personal participation in the unlawful practices and unbridled control over the practices that are found to violate section 17200 or 17500. Id. at 960; see also People v. Toomey, 203 Cal. Rptr. 642, 651 (Cal. Ct. App. 1984) (defendant aided and abetted a businesss unlawful conduct because he orchestrated all aspects of and had unbridled control over the practices which were found [to be unlawful].). This limiting principle is significant, according to the Officer and Director Defendants, because the UCLs purpose is to punish acts of unfair competition by the corporate entities who engage in that competition, not the individual officers and directors who simply approved a corporate entitys activities. See O‘Connor v. Uber Techs., Inc., C-13-3826 EMC, 2013 WL 6354534, at *18 (N.D. Cal. Dec. 5, 2013) (dismissing UCL claim against corporate officers with leave to add allegations that directors actively and directly participate[d] in [any] unfair business practice[s], because simply [i]dentifying their roles in the corporation and alleging that they were responsible for pay practices and employment policies does not make it plausible that they were personally liable, any more so than it would make any officer responsible for the torts allegedly committed by their corporation. California law does not impose liability on corporate officers merely for their role in the corporation, but only for wrongful acts in which they have been personally involved.) (quoting Bradstreet v. Wong, 161 Cal. App. 4th 1440, 1458 (2008)); see also Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1069 (9th Cir. 2016) (holding CEO personally liable because he admitted that, during the promotion, he controlled and directed Powers actions and admitted that the promotion was his idea).
Plaintiffs respond that they do not seek to hold any of the Officer or Director Defendants liable merely for their roles as corporate officers or directors or under a theory of vicarious
The primary dispute between the parties comes down to whether under the UCL plaintiffs can merely allege individual participation in the unfair business acts asserted under the UCL (which they have) or whether they also need to plead plausible facts showing that each defendant exercised unbridled control over (and hence bear personally responsibility for) each of the UCL acts. However stated, the through line of the cases on which both sides rely is that liability can lie against an officer or director who either personally commits a tort or, relevant here, personally commits the alleged UCL act or was sufficiently responsible for the commission of that act through his personal direction or action that he may be held personally liable.
It is a closer question, however, whether the Other Director Defendants (Huh, Valani, and Pritzker) have. As noted above with respect to RICO, plaintiffs repeated blanket assertion that the Board of Directors generally and Huh, Valani, and Pritzker (along with Bowen and Monsees) through their control of the Board of Directors had final say over JLIs marketing materials, by itself, does not establish the requisite individual direction or control to pin liability for marketing acts or even specific marketing campaigns of JLI on each member of the Board of Directors or any of the defendants in their individual capacity as Board members. See, e.g., CAC ¶¶ 207 n. 213, 333 n. 364, 415.63
Nor is the generalized reference to the Boards decision in October 2015 to resolve the alleged internal JLI debate about youth use (given concern over the issue expressed by Pritzker and others) and to specifically target teens (allegedly supported by Huh and unnamed others) enough to support individual liability. CAC ¶¶ 334-336. There is no allegation of a Board vote or other action identified. The plaintiffs do not identify any specific matters put forward by the defendant Directors together or individually that were approved through their direct control over the full Board. Nor do the Executive Committee allegations support the UCL claim. Huh, Valani, and Pritzker formed an Executive Committee of the Board in October 2015 and, as Monsees had stepped down as CEO, Pritzker, Huh, and Valani took charge of JLI until a
These generalized allegations are insufficient to connect each Other Director Defendant to the direction or control of any unfair acts or youth-targeted marketing acts. Plaintiffs identify a few internal comments made by the Other Director Defendants that (taking inference in favor of plaintiffs) show their general awareness of and expressed concern about the issue of youth targeting. But there are no factual allegations of specific conduct of youth-targeting committed by, at the direction of, or even with the specific knowledge of the Other Director Defendants during this time frame. See, e.g., CAC ¶ 334 (Pritzker commenting that branding feels too young); ¶ 339 (Huh being aware of efforts to mature the brand advertising to minimize risk of youth targeting); ¶ 405 (The Board was intimately involved in these youth prevention activities. For example, in April 2018, Riaz Valani and Nicholas Pritzker edited a youth prevention press release, noting that they dont want to get these small items wrong and think its critical to get this right.). The one comment that comes closest is Bowens alleged assertion that Valani was interested in leveraging user generated content, but there is no allegation in the CAC that it was the youth content or that Valani personally leveraged youth-content or directed anyone else to do so. Id. ¶ 357.64
In sum, the generalized allegations of control do not amount to plausibly alleged facts
More specific allegations are made against some of the Other Director Defendants regarding their efforts to negotiate and consummate the investment by Altria. See, e.g., CAC ¶ 43 (Pritzker and Valani, together with then-CEO were the lead negotiators on the Altria deal); ¶ 46 (in October 2019 Pritzker and Valani, and other officers and directors including Bowen, Monsees, and Huh, would have been instrumental in bringing Crosthwaithe on board at JLI from Altria). It does not appear that plaintiffs are alleging that the acts of seeking the investment by Altria by themselves are alleged unfair acts under the UCL, but even if they were an independent basis, there are no allegations that these Other Direct Defendants directed or otherwise had sufficient control over the eventual deal.66
The Other Director Defendants motion to dismiss the UCL claims against them is GRANTED with leave to amend.
2. Standing
a. JLI
JLI contends that California minor plaintiff L.B. lacks standing to pursue the UCL and FAL claims against JLI because L.B. fails to allege that she bought any JUUL products. Plaintiffs argue that L.B. sufficiently alleges that she purchased product from one unknown source and one from eBay according to her mother, who brings the claim on L.B.s behalf. CAC Appx. A ¶¶ 803, 806. JLI claims these assertions are implausible and insufficient. Not so; L.B. has standing.
b. Altria
Separately, Altria argues that the California plaintiffs have failed to allege standing under the UCL against it because they fail to allege any facts showing how they were harmed as a result of Altrias separate conduct. Altria complains that many of the allegations in the CAC assert conduct against an unspecific group of defendants generally, and even as to Altria plaintiffs fail to identify the specific acts for which the different Altria entities (among the four separately named as defendants) were responsible. Plaintiffs do not address this issue. As noted above, plaintiffs are given leave to amend additional details as to which Altria entity performed what acts or to allege why they cannot do so.
More substantively, Altria argues that because each of the California plaintiffs started using JUUL products before Altrias first involvement with JLI in December 2018 - and indeed Colgate has filed a suit against JLI based on false and misleading and youth targeting allegations prior to that date - none of the California plaintiffs can argue that anything Altria did caused them harm. In response, plaintiffs clarify that only C.D. and L.B. bring this claim and argue that Altrias unfair conduct contributed to their use of JUUL even if it was not responsible for the inception of their use of the product. Those allegations and facts in support are not contained in
3. Relief
Each of the moving defendants bring separate but related arguments why the UCL claim fails due to the plaintiffs failure to allege cognizable theories of equitable relief.
a. JLI
JLI argues that claims for equitable relief under the UCL (and the FAL) fail because plaintiffs have not shown that they have inadequate remedies at law. It relies on the Ninth Circuits recent decision in Sonner v. Premier Nutrition Corp., 962 F.3d 1072, 1081 (9th Cir. 2020), opinion amended and superseded on denial of reh‘g, 971 F.3d 834 (9th Cir. 2020) (Sonner must establish that she lacks an adequate remedy at law before securing equitable restitution for past harm under the UCL and CLRA.). The facts of Sonner - where the plaintiff on the eve of trial sought to secure a bench trial under the UCL by foregoing CLRA damages claims that had to be tried to a jury - are inapposite considering the allegations and the posture of the CAC. However, as limited amendments are already being required to the CAC, plaintiffs are given leave to amend to expressly allege that their remedies at law are inadequate and to support their claim to equitable restitution under the UCL and FAL.67
Assuming that hurdle is cleared (as it seems likely to be given the allegations regarding unfair conduct are not otherwise coextensive with plaintiffs legal claims and given the preliminary stage of these proceedings), JLI also argues that plaintiffs are not entitled to restitution from JLI because they failed to allege that JLI profited from any transaction with any California plaintiff and restitution only extends to money or property that was once in the possession of that
Plaintiffs do so here. See, e.g., CAC ¶ 649. Given the allegations regarding the diverse supply chains of JUUL products in the CAC, plaintiffs allegation regarding lost money and JLIs profiting from its initial sales are plausible and sufficient to allege entitlement to UCL restitution. See, e.g., Shersher v. Super. Ct., 154 Cal. App. 4th 1491, 1498, 1500 (Cal. App. 2d Dist. 2007) (plaintiff and the putative class members clearly had an ownership interest in the restitutionary relief sought because they purchased Microsofts product albeit through a retailer and rejecting defendants argument that plaintiff allegedly lost any ownership interest in his money once he used it to purchase Microsofts product from a retailer.). How the many JUUL supply chains worked and how much if any of plaintiffs money spent to purchase JUUL products constitutes appropriate restitution can only be determined following fact and expert discovery and on a full evidentiary record.
b. Altria
Altria asserts, first, that the California plaintiffs do not have standing to seek restitution from Altria because they started using JUUL products before Altrias conduct occurred. However, plaintiffs plausibly allege that Altrias conduct contributed to the youth targeting, and may (on amendment) allege that Altrias conduct more narrowly contributed to C.D. and L.B.s continued use of JUUL. If those allegations are included on amendment, causation - whether specific plaintiffs were harmed in some part as a result of Altrias conduct - is more appropriately determined on a full evidentiary record.
Altria also argues that it cannot be liable for restitution as Altria did not receive any funds
Plaintiffs rely on Troyk v. Farmers Group, Inc., 171 Cal. App. 4th 1305, 1340 (Cal. App. 4th Dist. 2009). There, the unfair conduct (charging fees) was carried out by a wholly owned subsidiary. The court concluded that to the extent the parent entity earned profits from those service charge payments, its net worth increased and the value of the parent entitys stock investment in the subsidiary likewise increased and sufficient benefit flowed to the parent that could constitute potential restitution.
Altria contends that Troyk is inapposite because the trial court relied (on a full summary judgment record) not just on the wholly-owned subsidiary/parent relationship (which it argues is not comparable to a 35% minority interest) but also on facts suggesting the parent controlled the subsidiary and the acts were of a single enterprise. Id. at 1340-41. That the showing in Troyk was based on a summary judgment record (including evidence not only of parental profit from the unfair act but also direction, control, and coordination), demonstrates that whether restitution is warranted under a particular fact pattern should be determined on a full evidentiary record at summary judgment record or post-trial.
c. Officers and Directors
The Officer and Director Defendants make a number of arguments that restitution is generally unavailable and more specifically that restitutionary or injunctive relief against each of them is inappropriate.
The argument that plaintiffs are not entitled to restitution because plaintiffs do not allege that they purchased anything from JLI directly or a source likely to convey funds to JLI is unpersuasive, as discussed earlier. See, e.g., Dkt. No. 751. The Officer and Director Defendants more persuasively argue that restitution is not warranted because there are no allegations that any of them personally obtained any money that is traceable or the result of the unfair practices alleged. Plaintiffs respond by pointing to the well-established case law discussed above that allows courts to consider restitution despite the indirect nature of the payments received by
In the end, if plaintiffs are able to amend to state UCL claims against the Other Director Defendants, I will determine how far my broad discretion to award restitution or injunctive relief may stretch and what restitution should be awarded or conduct be enjoined. That is more appropriately addressed on a full evidentiary record, based on evidence regarding exactly how the Officer and Director Defendants were compensated and as a result of what guarantees, metrics or other compensation structures were in place.
JLI, Altria, Monsees, and Bowens motions to dismiss the California and UCL claims are DENIED. The Other Director Defendants motions to dismiss are granted with respect to the UCL claims and with leave to amend. Plaintiffs are also given leave to amend to allege why their remedies at law are inadequate and why they need to preserve their requests for equitable relief.
D. CLRA
JLI moves to dismiss the CLRA claim for failure to file the required affidavit under
As to the transaction required under section 1770(a),69 the CLRA does not require a direct transaction between plaintiffs and defendants. Johnson v. Nissan N.A., Inc., 272 F. Supp. 3d 1168, 1183 (N.D. Cal. 2017). Notwithstanding this authority, JLI contends that at least an indirect transaction is required such as through an authorized retailer. JLI CA Reply at 13. That argument is not supported. See, e.g., McAdams v. Monier, Inc., 182 Cal. App. 4th 174, 186 (Cal. App. 3d Dist. 2010) (noting a cause of action under the CLRA may be established independent of any contractual relationship between the parties, and allowing CLRA claims based on purchases from retailers as well as purchases from [manufacturer], from home builders, or from individuals selling their homes.).
JLIs motion to dismiss the CLRA claim is DENIED, except plaintiffs are given leave to amend to include the venue affidavit.
E. Unjust Enrichment
Defendants argue that the unjust enrichment claim under California law fails because there is no separate stand-alone unjust enrichment cause of action and plaintiffs have failed to plausibly plead facts showing that unjust enrichment is an appropriate remedy against specific defendants. On the first point, unjust enrichment may proceed as a stand-alone cause of action under California law if it states a claim for relief as an independent cause of action or as a quasi-contract claim for restitution. To allege unjust enrichment as an independent cause of action, a plaintiff must show that the defendant received and unjustly retained a benefit at the plaintiffs
The Officer and Director Defendants argue that even if this claim can be stated as a separate claim, it must be dismissed because there no facts alleged supporting an unjust enrichment claim against them. Dkt. No. 748. As with the UCL restitution issue, if any of the claims asserted against the Officer and Director Defendants survive (as a matter of pleading or thereafter), what enrichment defendants received as a result of illegal or unfair conduct and whether it would be unjust for them to keep it is better determined on a full record showing the payment each Officer and Director Defendant received from JLI as a result of what guarantees, metrics, or other compensation structures.
F. Other Claims/Subject Matter Jurisdiction for Putative Subclass Claims
JLI and Altria also move to dismiss the CAC causes of action asserted on behalf of 25 putative subclasses and the related claims of 58 class representatives for lack of subject matter jurisdiction. JLI MTD (Dkt. No. 629); Altria MTD (Dkt. No. 632) at 39. As I indicated in the Tentative Opinions (Dkt. No. 977), I will not reach this issue now. If the parties cannot resolve it through a meet and confer process, or through plaintiffs’ limited amendment to the CAC otherwise required by this Order, the subject matter jurisdiction arguments may be raised by separate motion.
Similarly, I will not reach the arguments raised by the Other Director Defendants on whether the CAC fails to allege facts supporting either the consumer protection or unjust enrichment claims against them under other state laws. Dkt. No. 748. To the extent that these issues are not resolved by the limited amendments to the CAC (and plaintiffs may, if they choose, amend the allegations on these other state law claims in conjunction with the limited leave to
G. Personal Jurisdiction over the Other Director Defendants
The Other Director Defendants question whether this court has personal jurisdiction over each of them with respect to the California claims for cases filed in this jurisdiction pursuant to the Direct Filed Order or for cases filed in other jurisdictions and transferred here by the Judicial Panel.
Huh argues generally that the CAC fails to allege sufficient facts establishing specific jurisdiction over him in California for the California claims under consideration. Dkt. No. 748. As noted above, the UCL claims against Huh are dismissed with leave to amend. Assuming that plaintiffs are able to amend to allege the UCL claim against him based on his own alleged actions or directions to others to act in violation of the UCL, specific jurisdiction over Huh would likely be satisfied. Huh’s personal acts necessarily occurred when he served on JLI’s board in California. That is sufficient.
The Other Director Defendants also argue that the CAC fails to allege sufficient facts to establish specific jurisdiction against them “outside” of California for cases that originated (or absent the Direct Filed Order would have originated) in non-California courts. They contend that I need to determine whether there are sufficient “acts” taken by each Other Director Defendant connected to each non-California jurisdiction where an underlying action was or would have been filed, despite the transfer to or direct-filing of cases in this court, and despite the California claims based on their acts taken in California or acts taken through a corporate entity based in California. In particular, these defendants contend that because the CAC fails to allege that the Other Director Defendants had control over any state-specific advertising, it fails to establish personal jurisdiction for the other jurisdictions.
As the UCL claim has not yet been plausibly alleged against the Other Director Defendants, for now I will not reach this argument with respect to UCL claims asserted in the underlying complaints filed in or that would have been filed in jurisdictions outside of California.
V. MOTIONS TO DISMISS GOVERNMENT BELLWETHER COMPLAINTS
JLI, Altria, and the Officer and Director Defendants separately move to dismiss the claims asserted against each of them in the PECs. I resolved the RICO claims above. I now address the remaining claims, including public nuisance, negligence, gross negligence and violations of New York and Florida consumer protection statutes. I also discuss the Officer and Director Defendants’ additional motion to dismiss for lack of personal jurisdiction.
A. Municipal Cost Recovery Rule
JLI argues that the monetary damages the government entities seek for both their nuisance and negligence-based claims are not cognizable because the municipal cost recovery rule bars them from recovering the cost of providing educational or other public community services to their constituents.70 The rule, sometimes called the “free public services doctrine,” is a common law doctrine holding that “the cost of public services for protection from fire or safety hazards is to be borne by the public as a whole, not assessed against the tortfeasor whose negligence creates the need for the service.” City of Flagstaff v. Atchison, Topeka & Santa Fe, 719 F.2d 322, 323 (9th Cir. 1983). The Ninth Circuit in Flagstaff observed, however, that “[r]ecovery has . . . been allowed where the acts of a private party create a public nuisance which the government seeks to abate.” Id. at 324.
Decisions from the opioid multidistrict litigation before the Northern District of Ohio are instructive. There, multiple tribes and counties alleged misconduct by opioid manufacturers, distributors, and pharmacies that created and maintained an opioid epidemic. They sought “damages attributable to Defendants’ misconduct, including the costs of emergency, law enforcement, and criminal justice services,” as well as “the expenses incurred in responding to the opioid epidemic” that were “the consequence of long-term, continuing misconduct by the
Judge Polster determined that the municipal cost recovery rule did not bar the tribes’ and counties’ claims, noting, “The current trend among state court judges’ ruling in opioid-related cases around the country is that the municipal cost recovery rule does not apply when, as alleged here, an ongoing and persistent course of intentional misconduct creates an unprecedented, man-made crisis that a governmental entity plaintiff could not have reasonably anticipated as part of its normal operating budget for municipal, county, or in this case, tribal services.” 2019 WL 3737023, at *1.
Cases considering negligence and nuisance public entity claims asserted against firearm manufacturers recognize similar distinctions and decline to apply the rule. In Cincinnati v. Beretta U.S.A. Corp., the Ohio Supreme Court allowed the city of Cincinnati to recover governmental costs flowing from the gun manufacturers’ ongoing conduct of marketing, distributing, and selling firearms in a manner that created an illegal secondary market for firearms. 95 Ohio St.3d 416, 428 (2002). “Unlike the train derailment that occurred in the Flagstaff case, which was a single, discrete incident requiring a single emergency response,” the court found that misconduct alleged by Cincinnati was “ongoing and persistent,” and that the “continuing nature of the misconduct may justify the recoupment of such governmental costs.” Id. It also noted that the distinction between single, discrete incidents and ongoing or persistent conduct is consistent with the public nuisance exception expressly recognized in Flagstaff, “that recovery by a government entity is allowed ‘where the acts of a private party create a public nuisance which the government seeks to abate.’” Id. (quoting Flagstaff, 719 F.2d at 324).
JLI points to a case from the Illinois Supreme Court that declined to follow this analysis. City of Chicago v. Beretta U.S.A. Corp., 213 Ill. 2d 351, 430 (2004) (“We agree with defendants that when the need for emergency services in response to an alleged nuisance is ongoing, the
For instance, in the opioid litigation in New York, multiple counties alleged that defendants’ deceptive marketing campaign fueled an opioid crisis, “causing them to spend millions of dollars in payments for opioid prescriptions for employees and Medicaid beneficiaries,” and “forced them to pay the costs of implementing opioid treatment programs for residents, purchasing prescriptions of naloxone to treat prescription opioid overdoses, combating opioid-related criminal activities, and other such expenses arising from the crisis.” In re Opioid Litigation, 2018 WL 3115102, at *2 (N.Y. Sup. Ct. Jun. 18, 2018). The court found that “a review of the current state law revealed no case law supporting the manufacturer defendants’ contention that such rule bars recovery for municipal expenses incurred, not by reason of an accident or an emergency situation necessitating ‘the normal provision of police, fire and emergency services,’” but to “remedy public harm caused by an intentional, persistent course of deceptive conduct.” Id. at *10 (quoting Flagstaff, 719 F.2d at 324). It held that the municipal cost recovery doctrine did not bar the New York counties’ claims, and that concluding otherwise “would distort the doctrine beyond recognition.” Id.; see also In re Nat’l Prescription Opiate Litig. – Broward County, 2020 WL 1986589, at *6 (N.D. Ohio Apr. 27, 2020) (similarly concluding that “the Florida Supreme Court would find the Municipal Cost Recovery Rule inapplicable to the present case”).
The government entities plausibly allege damages that are not a result of a single discrete incident that a government entity can reasonably expect to incur; rather, they allege damages as a result of an ongoing and persistent deceptive marketing campaign and intentional targeting of
The municipal cost recovery rule does not bar the claims of the seven government entities whose complaints are being tested on these motions from recovering the monetary damages they seek for their public nuisance and negligence claims. JLI’s motion to dismiss on this basis is DENIED.71
B. Public Nuisance
The government entities allege that defendants have created a public nuisance by producing, promoting, distributing, and marketing JUUL products for underage use in their school districts and counties in violation of each state’s public nuisance law. JLI moves to dismiss the claims on grounds that the government entities should not be allowed to expand public nuisance law beyond its traditional boundaries and into product liability. It also attacks the sufficiency of the allegations regarding interference with a public right, control over the nuisance-causing instrumentality, and special injury. Altria and the Officer and Director Defendants move to dismiss the claims for failure to adequately plead their role in creating and maintaining the alleged nuisance.
a. Product Liability Limitation
As an initial matter, JLI argues that the public nuisance claims should be dismissed because they are essentially product liability claims for economic damages under the guise of nuisance law. It contends that public nuisance law should not be applied here because other product-based torts, like negligent misrepresentation, are better suited to address the government entities’ allegations.
Contrary to JLI’s assertions, “while Plaintiff’s nuisance theory concerns a product, it does not sound in products liability.” In re Nat’l Prescription Opiate Litig. – Muscogee (Creek) Nation, 2019 WL 2468267, at *29. The allegations here do not concern the JUUL product itself, but rather the alleged consequence of JLI’s conduct. Put differently, the public nuisance claims are premised on JLI’s aggressive promotion of JUUL to teens and efforts to create and maintain an e-cigarette market based on youth sales, not on any alleged defect in JUUL products. This is not, as JLI contends, an attempt to stretch nuisance law to allow claims against manufacturers of allegedly dangerous products or based on failures to warn in the marketing of those products. The public nuisance claims alleged here are not as novel as JLI characterizes them to be; similar claims have been alleged in numerous opioid and gun manufacturer cases. See, e.g., In re Nat’l Prescription Opiate Litig. – Muscogee (Creek) Nation, 2019 WL 2468267, at *29 (drawing distinction between a product liability claim alleging a negligence theory and claim alleging a non-product liability theory of negligence); Ileto v. Glock Inc., 349 F.3d 1191, 1210–14 (9th Cir. 2003) (concluding that “[c]ontrary to the dissent’s mis-characterization of this case as a products liability suit, this is an action that alleges negligence and public nuisance claims; it does not allege that the guns in question were defectively designed or manufactured or that the defendants failed to affix an adequate warning on the guns”; rather, the public nuisance claim “rest[ed] on the defendants’ actions in creating an illegal secondary market for guns,” conduct that plaintiffs alleged “unreasonably interfered with public safety and health”).
JLI asserts that the government entities have not shown that the relevant states (Arizona, California, Florida, Pennsylvania, and New York) recognize these kinds of public nuisance claims.
JLI cites People ex rel. Spitzer v. Sturm, Ruger & Co., 309 A.D.2d 91 (N.Y. App. Div. 2003) as an example of a New York court dismissing public nuisance claims that were improperly disguised product liability claims. The allegations in that case also differ from the ones here. See Johnson v. Bryco Arms, 304 F. Supp. 2d 383, 389–91 (E.D.N.Y. 2004) (allowing public nuisance claim against gun industry whose marketing and sales led to illegal secondary gun market; analogizing to Ninth Circuit’s reasoning Ileto and distinguishing Spitzer on grounds that it dismissed public nuisance claims because of intervening acts of criminals using guns “but specifically not[ed] facts which, if alleged, might be sufficient to state a cause of action for public nuisance against members of the firearms industry”).
JLI points out that no Arizona court has recognized a nuisance cause of action against a
The government entities’ public nuisance claims do not stretch into product liability law. JLI’s motion to dismiss on this ground is DENIED.
b. Interference With A Public Right
A public nuisance is generally defined as “an unreasonable interference with a right common to the general public.”
As for the manufacturer defendants’ claim that the plaintiffs have failed to plead substantial interference with a public right, it suffices to note the defendants’ failure to establish why public health is not a right common to the general public, nor why such continuing, deceptive conduct as alleged would not amount to interference; it can scarcely be disputed, moreover, that the conduct at the heart of this litigation, alleged to have created or contributed to a crisis of epidemic proportions, has affected a considerable number of persons.
In re Opioid Litigation, 2018 WL 3115102, at *22 (internal quotation marks and citation omitted).
JLI further mischaracterizes the allegations here as simply a “tallying” of alleged individual injuries based on a significant number of people in the school districts or communities being affected in a similar way. The government entity complaints adequately describe a public health crisis of youth e-cigarette use and wholesale addiction of kids to nicotine. I must accept these factual allegations as true at this stage.
JLI’s motion to dismiss the public nuisance claims for failure to plead an interference with a public right is DENIED.
c. Control Over Instrumentality
JLI argues that the government entity complaints from Arizona, Florida, New York, and Pennsylvania fail because there is no allegation that JLI controlled the instrumentality that caused the nuisance. A review of the case law reveals that control is a required element for public nuisance claims in Pennsylvania and Florida. The parties’ briefs do not address whether the same
JLI’s contention that the government entities have not alleged that it controlled the JUUL product as of the time the alleged nuisance occurred, as discussed above, “rest[s] upon a false premise that the instrumentality of the nuisance is the [JUUL product itself].” In re Nat’l Prescription Opiate Litig. – Muscogee (Creek) Nation, 2019 WL 2468267, at *30. The government entity complaints include plausible allegations that JLI had control over the conduct that created and maintained the youth e-cigarette crisis, such as directly and intentionally marketing to youth, distributing free samples to young audiences, presenting misleading information to students in schools, and preserving the availability of the popular mint flavor while ostensibly removing “kid-friendly” flavors from the market. These allegations match the type of public nuisance allegations that have proceeded past the pleadings stage in cases addressing opioids and firearms. See, e.g., In re Nat’l Prescription Opiate Litig. – West Boca Medical Center, 2020 WL 1669655, at *18 (N.D. Ohio Apr. 3, 2020) (“Defendants had control over the instrumentality of the nuisance by virtue of their control over their own opioid marketing, distribution, or dispensing practices.”); Cincinnati v. Beretta U.S.A. Corp., 95 Ohio St.3d at 420 (“[I]t is not fatal to appellant’s public nuisance claim that appellees did not control the actual firearms at the moment that harm occurred,” where complaint alleged that appellees “created a nuisance through their ongoing conduct of marketing, distributing, and selling firearms in a manner that facilitated their flow into the illegal market”; thus the City alleged that the manufacturers “control the creation and supply of this illegal, secondary market for firearms, not the actual use of the firearms that cause injury”).
At the pleading stage, I accept plaintiffs’ allegations regarding JLI’s level of control. In re Nat’l Prescription Opiate Litig. – Muscogee (Creek) Nation, 2019 WL 2468267, at *30.
d. Special Injury
A plaintiff cannot recover pecuniary losses resulting from a public nuisance unless it has suffered damages “different [in] kind from that suffered by the general public.”
The school districts provide sufficient detail in their complaints about the kinds of harms caused by JLI’s conduct that is unique to schools and different in kind from that suffered by the general public in their community. See TVC ¶¶ 597–608 (to combat widespread youth vaping, the school districts had to take numerous actions, such as diverting limited resources to combat the problem, creating resources and education materials, installing e-cigarette detectors and cameras to discourage and detect e-cigarette use, and managing hazardous waste problem due to improper disposal of e-cigarette devices and pods on school grounds). They adequately allege that JLI’s conduct—including a targeted marketing campaign on social media, flavored products such as mango and mint, and other actions targeting school-age youth—created and maintained an illicit youth market of school-age youth addicted to nicotine, causing extreme disruption in classrooms and unique harm to schools that is different in kind than the community at large.
Similar allegations have passed the pleadings stage in opioid cases. See, e.g., In re Nat’l Prescription Opiate Litig. – West Boca, 2020 WL 1669655, at *17 (hospital plausibly pleaded concrete economic losses differing in kind from the generalized injury to health suffered by the general public, including “increased operational costs” to train hospital staff, provide diagnostic tools to identify “pill-seekers”, and hire additional personnel to help them keep their opioids secure).
JLI’s motion to dismiss the public nuisance claims for failure to plead a special injury is DENIED.
2. Altria
Altria separately contends that the government entities fail to allege sufficient facts regarding the role that it played in creating or maintaining the alleged nuisance. I disagree. Drawing inferences in their favor, the government entity complaints include allegations that make Altria’s participation plausible.
The government entities claim that JLI benefitted from Altria’s expertise in designing and marketing addictive products, and in thwarting regulation. TVC ¶ 9. Although Altria argues that its involvement with JLI began in December 2018, with its official investment in JLI, the complaints allege that the companies began coordinating their marketing efforts to expand the youth vaping marketing as early as Spring 2017 by sharing information and coordinating public
A key aspect of this early coordination was Altria’s acquisition of shelf space in 2018 “that it would later provide to JLI to sustain the exponential growth of underage users of JUUL products.” Id. ¶ 471. This ensured that, “even after public and regulatory scrutiny forced JLI to stop its youth-oriented advertising, JUUL products would still be placed where kids are most likely to see them—next to Marlboros, the most iconic, popular brand of cigarettes among underage users—in a location they are most likely to buy them—retail establishments.” Id. ¶ 475.
Altria also utilized its lobbying muscle to maintain the youth vaping market. Both before and after gaining a share of JLI, the government entities allege that Altria used its lobbying power to keep mint, a popular flavor with youth, on the market for as long as possible. Id. ¶¶ 519–50. Following investment in JLI, two key Altria executives became JLI’s CEO and head of regulatory affairs and Altria agreed to assist JLI with “direct marketing; sales, distribution, and fixture services; and regulatory affairs” and committed to applying “its logistics and distribution experience to help JLI expand its reach and efficiency.” Id. ¶¶ 482, 487.
In addition, the government entities allege that Altria actively participated in the misleading “Make the Switch” campaign, even though it knew that JUUL was not a product used mostly by adults to switch but, rather, was a product widely used by youth and nicotine naïve individuals. Id. ¶ 245. The campaign allegedly sought to convince the public that JUUL products were never marketed to youth and were instead intended as smoking cessation devices, a cover-up that allowed the youth e-cigarette crisis to continue and grow. Id. ¶¶ 582–92, 621.
These allegations, considered together, plausibly allege that Altria engaged in conduct which created, maintained and/or contributed to the purported nuisance.79 Altria’s attempt to
Altria’s motion to dismiss the public nuisance claims is DENIED.
3. Officer and Director Defendants
The Officer and Director Defendants move to dismiss the public nuisance claims against them on grounds that the government entities have failed to allege their roles in creating and maintaining the public nuisance of the youth vaping epidemic. The government entities respond that the allegations are sufficient to establish each of the Officer and Director Defendants’ personal roles in the conduct, not by virtue of their status as JLI officers or directors, but because each of them authorized, directed, or participated in creating and maintaining the public nuisance.
“A corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf.” Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir. 1985) (citation omitted); State of New York v. Shore Realty Corp., 759 F.2d 1032, 1053 (2d Cir. 1985) (holding an individual defendant personally liable for public nuisance without piercing the corporate veil). The government entities cite multiple examples that show that each state at issue on these motions has applied a similar individual liability theory80 and has recognized individual liability for a public nuisance tort in particular.81
Before turning to the sufficiency of the allegations, I address the legal argument raised by some of the Officer and Director Defendants. They argue that although corporate officers can be held personally liable for torts, there is no reason to believe that state courts would expand public nuisance where abatement is impossible, given that an individual officer has no authority to take action either on behalf of the corporation without the consent of the board of directors or when an individual officer is no longer employed by the corporation.
The jurisdictions at issue here generally follow the
That is precisely the relief the government entities seek here – equitable relief to fund prevention education and addiction treatment. If liable, individual Officer and Director
The factual allegations concerning Monsees and Bowen’s conduct are sufficient at this stage. The government entity complaints allege that Monsees played a key role in directing JLI’s youth marketing, leading to the public health crisis at issue. Monsees admitted that he and Bowen “carefully studied the marketing strategies, advertisements, and product design revealed in cigarette industry documents that were uncovered through litigation,” describing how these companies marketed cigarettes to youth. TVC ¶¶ 68, 298–99. Monsees knew well before launch that JUUL would be attractive to youth, because in October 2014, he received results from a study of a JUUL prototype that revealed that although JUUL was “too much” for smokers, “the younger group” liked JUUL, and JUUL “might manage to make smoking cool again.” Id. ¶¶ 121–24.
In particular, Monsees set the focus on marketing to the “cool kids” and “personally reviewed images” from JLI’s “Vaporized” campaign. Id. ¶¶ 306, 318. “‘[H]e and other in the company were well aware’ that the marketing campaign ‘could appeal to’ teenagers.” Id. ¶ 318 (quoting New York Times article). He also “provided specific direction on the content of the website to JLI employees.” Id. ¶ 370. In early July 2015, he spoke to Alexander Asseily, a JLI Director, “at length” about JLI’s marketing approach, but JLI continued to market its products to youth for years to come. Id. at ¶ 371.
The government entity complaints allege that Bowen played a large role in developing and designing the JUUL product to appeal to young users and sustain their addiction to nicotine. TVC ¶¶ 5, 98–125. He helped create a product that had features attractive to youth that was also easy to use. He personally participated in “buzz” experiments and products tests, and worked to
The allegations against Pritzker, Valani, and Huh, however, are not as detailed and are not sufficient. The government entities allege that Pritzker, Valani, and Huh formed an Executive Committee in October 2015 and took “charge of fraudulently marketing JUUL products, including to youth.” Id. ¶ 385. Pritzker admitted that JUUL’s branding “feels too young” and discussed the JUUL approach “at length” with Valani and Board member Asseily in July 2015. Id. ¶ 371. Asseily also sent Pritzker and Valani a follow-up email expressing his concerns about the JUUL marketing strategies. Id. The PECs allege that “[e]ven though the directors and executives of JLI knew—and explicitly stated—that what they were doing was wrong, JLI pressed ahead with its youth-oriented Vaporized ad campaign through early 2016.” Id. ¶ 373.
The government entities also allege that Pritzker, Huh, and Valani through their position on the JLI Board of Directors were responsible for continuing to market flavors to youth, particularly mint, because they had “final say” over all of JLI’s marketing activities and effectively “controlled the messaging around JUUL products.” Id. ¶¶ 185–86, 377. But as noted above, the “final say” and “control” allegations are not sufficient for the claims asserted against the Other Director Defendants for the claims in the CAC and are not sufficient for the nuisance claim under the PEC.
The other allegations similarly do not establish that Pritzker, Huh, and Valani authorized, directed, or participated in conduct that contributed to the youth e-cigarette crisis. While the government entities allege that the Other Director Defendants knew about the youth-targeting marketing, they do not specifically allege conduct in which the Other Director Defendants personally directed, controlled, or participated. Vague allegations about exercising “final say” over marketing decisions do not suffice without any specificity concerning what those decisions
The allegations in the government entity complaints are sufficient to satisfy the requirements under
C. Negligence
The school districts bring claims for negligence and gross negligence. JLI challenges the duty element and argues that the economic loss doctrine also bars the school districts from seeking recovery. Altria and the Officer and Director Directors challenge the sufficiency of the allegations with respect to duty and breach.82
1. JLI
a. Duty
Duty is an “obligation, recognized by law, which requires the defendant to conform to a particular standard of conduct in order to protect others against unreasonable risks of harm.” Delci v. Gutierrez Trucking Co., 229 Ariz. 333, 335 (Ct. App. 2012) (citation omitted). In each of the relevant jurisdictions, public policy factors govern whether a defendant owes a duty of care. Some jurisdictions give more weight to the foreseeability of harm than others. I address duty under each jurisdiction in turn.
(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct and (6) the policy of preventing future harm.
J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804 (1979) (citing Biakanja v. Irving, 49 Cal. 2d 647, 650 (1958)) (hereinafter the “Biakanja factors”)). “[F]oreseeability of the risk is a primary consideration in establishing the element of duty.” Id. at 806 (citation omitted).
The school districts allege that JLI created a product that had features to intentionally appeal to young users (e.g., flavors and easily disguisable), marketed it directly to youth using social media, young attractive models, websites and networks frequented by teens, and even marketed it directly in school through deceptive “education programs” that taught students how to use JUUL and told them it was safe. See, e.g., TVC ¶¶ 74–75, 111–18, 143-51, 161, 219–23, 303–05, 315–19, 325–27, 336–43, 361–62, 441–45. This alleged conduct hooked millions of teenagers onto vaping with an addictive product that is easily concealed in schools, and foreseeably caused a multitude of problems for the school districts, including, but not limited to, the need to devote substantial staff time to addressing the crisis, financial costs from new equipment to detect e-cigarette use, and handling hazardous waste on school grounds. Id. at ¶¶ 597–609.
These allegations sufficiently plead that JLI’s actions in marketing JUUL directly to teens placed the school districts in the “foreseeable zone of risk.” Applying the Biakanja factors, the school districts adequately allege that: (1) JLI’s scheme was intended to “affect” school children, which necessarily caused harm on school district property; (2) the harm was foreseeable, as discussed above; (3) the certainty of their injuries must be accepted as true at this stage; (4) there is a close connection between JLI’s conduct that created the youth vaping market and the harms suffered by the school districts; (5) there is strong “moral blame” attached to JLI’s conduct in targeting school children with a dangerous product; and (6) there is also a strong policy in favor of preventing future harm and curbing teen vaping. See Ileto, 349 F.3d at 1197 (policy factors weighed in favor of imposed legal duty on gun manufacturer, where shooting victims sufficiently
In Florida, “[t]he touchstone for determining whether a duty exists is foreseeability.” Sewell v. Racetrac Petroleum, Inc., 245 So.3d 822, 825 (Fla. Dist. Ct. App. 2017) (internal quotation marks and citation omitted). Where a person‘s conduct is such that it creates a “‘foreseeable zone of risk’ posing a general threat of harm to others, a legal duty will ordinarily be recognized to ensure that the underlying threatening conduct is carried out reasonably.” Id. The Florida Supreme Court has identified four sources that help determine whether a duty arises. As relevant here, the school districts rely on the “general facts of the case” as the source for JLI‘s common-law duty. McCain v. Fla. Power Corp., 593 So.2d 500, 503 n.2 (Fla. 1992)
The school districts’ allegations here are analogous to the foreseeable harms at issue in the opioid multidistrict litigation. For example, West Boca Medical Center brought claims as a non-user of a product that suffered substantial harms due to a public health crisis caused by the defendants in the form of treating patients with minimal or no compensation and additional operational costs to combat the crisis. See In re Nat‘l Prescription Opiate Litig. – West Boca Medical Center, 2020 WL 1669655, at *4–5. It asserted that “its injuries were within the ‘foreseeable zone of risk’ created by Defendants’ manufacturing, distributing, and dispensing activities, because: (a) if not conducted with a requisite level of care, these activities could (and, in fact, did) foreseeably allow opioids to be diverted in large quantities into West Boca‘s service area; (b) this diversion could (and, in fact, did) foreseeably lead to widespread injury to people‘s health, creating a public health crisis; and (c) hospitals are necessarily and foreseeably on the “front lines” of any and all health crises.” Id. at *28.
Applying Florida law and accepting the allegations as true at the motion to dismiss stage, Judge Polster concluded that West Boca sufficiently pleaded a duty of care because its “asserted injuries plausibly fall within the foreseeable zone of risk created by Defendants’ manufacturing, distributing, and dispensing activities related to opioid drugs.” Id.; see also In re Nat‘l Prescription Opiate Litig. – Broward County, 2020 WL 1986589, at *9 (concluding Broward County sufficiently alleged a claim of common law negligence under Florida law for the same
The school districts’ allegations are sufficient under Florida law for the same reasons. They have plausibly alleged injuries that were within the “foreseeable zone of risk” created by JLI‘s conduct. Its youth-targeted marketing created a surge in youth e-cigarette use, particularly in schools where the product was easily disguisable, and the rampant use foreseeably led to widespread injury to schools that are foreseeably on the “front lines” of the crisis.
In Pennsylvania, “[t]he determination of whether a duty exists in a particular case involves the weighing of several discrete factors which include: (1) the relationship between the parties; (2) the social utility of the actor‘s conduct; (3) the nature of the risk imposed and foreseeability of the harm incurred; (4) the consequences of imposing a duty upon the actor; and (5) the overall public interest in the proposed solution.” Althaus ex rel. Althaus v. Cohen, 562 Pa. 547, 553 (2000). Here, the need for prevention of youth vaping is unquestionable and social utility weighs in favor of imposing a duty on JLI to exercise reasonable care in promotion of its product. The school districts have not only alleged that their harm was foreseeable, but also targeted. These factors outweigh the concerns against imposing a duty.
Although foreseeability is not an essential factor in finding duty under Arizona and New York law, the public policy factors weigh in favor of finding duty in those states as well. Hamilton v. Beretta U.S.A. Corp., 96 N.Y.2d 222, 232 (N.Y. 2001) (“Foreseeability, alone, does not define duty – it merely determines the scope of the duty once it is determined to exist.“); Quiroz v. ALCOA Inc., 243 Ariz. 560, 564 (2018) (“[F]oreseeability is not a factor to be considered by courts when making determinations of duty.“).
In New York, courts “fix the duty point by balancing factors, including the reasonable expectations of parties and society generally, the proliferation of claims, the likelihood of unlimited or insurer-like liability, disproportionate risk and reparation allocation, and public
Johnson v. Bryco Arms, 304 F. Supp. 2d 383, 399 (E.D.N.Y. 2004), another case applying New York law, demonstrates why JLI‘s reliance on Hamilton is misplaced and why the school districts have sufficiently pleaded a duty that comports with public policy. There, the court explained that Hamilton “was, in part, predicated on the inability in that case to determine whether a high incidence of traces was attributable to irresponsible conduct on the part of certain members of the gun industry.” Id. at 400. By contrast, the plaintiff in Johnson plausibly pleaded that gun manufacturers played a disproportionate role in supplying the illegal gun-trafficking market and “state[d] facts that establish a duty on the part of gun companies to exercise reasonable care in the marketing and sales of their product.” Id. The duty did not depend on controlling the actions of third parties that misused guns, but rather on the gun manufacturers’ business practices.
The same logic applies here. Contrary to JLI‘s mischaracterization of the allegations, the school districts do not simply contend that JLI manufactured a dangerous product that caused them downstream harm. Rather, they allege that JLI‘s lack of reasonable care in the marketing and sales of JUUL created an illicit youth market and the heavy promotion of JUUL to teen users caused the school districts reasonably predictable harm.83 This supports finding a duty under New
In Arizona, duties are created either by “special relationships or relationships created by public policy.” Quiroz, 243 Ariz. At 565. The primary source for identifying a duty based on public policy is based on Arizona state statutes. Id. at 566; see, e.g., Brannigan v. Raybuck, 136 Ariz. 513, 516–17 (1983) (statutes barring minors from consuming alcohol create a duty prohibiting liquor licensees from furnishing alcohol to minors). The school districts allege that JLI‘s conduct violates Arizona‘s public policy against marketing e-cigarette products to minors. Tucson ¶ 629 (citing
The school districts sufficiently plead that JLI violated the policy interests behind these Arizona statutes by marketing an addictive product to school-age children, leading to an epidemic of youth vaping and corresponding harms to schools. JLI does not convincingly refute these public policy considerations.
Altogether, the school districts do not seek to impose a duty on JLI as members of the general public. Their specific allegations answer JLI‘s concerns about limitless or unbounded liability. The factors considered above and ordinary principles of tort law such as proximate causation discussed below “are fully adequate to limit recovery without the drastic consequence of an absolute rule which bars recovery in all such cases.” J‘Aire, 24 Cal. 3d at 808. The policy considerations “place a limit on recovery by focusing judicial attention on the foreseeability of the injury and the nexus between the defendant‘s conduct and the plaintiff‘s injury.” Id. As Judge Polster emphasized in finding that West Boca sufficiently pleaded a duty of care owed by the opioid manufactures, “[a]t this stage in the case, a complaint need only set forth a plausible claim for relief and should not be dismissed unless it is clear that no relief could be granted under any set
The school districts adequately allege that JLI owed them a duty of care under Arizona, California, Florida, Pennsylvania, and New York law because their harms were foreseeable and public policy supports imposing a duty. JLI‘s motion to dismiss the negligence claims on this basis is DENIED.
b. Economic Loss Doctrine
JLI argues that the economic loss doctrine in all states but Arizona require dismissal of the school districts’ negligence claims because they seek economic losses without plausible allegations of physical injury or property damage. The school districts contend that their losses are not “purely economic” because they have also suffered physical property damage in the form of hazardous waste, removal of bathroom doors, and other alterations to school property. JLI responds that even if hazardous disposal of JUUL pods qualified as property damage, that would be the limit of the school districts’ negligence claims.
The gravamen of the school districts’ complaints clearly involves economic losses—for example, the alleged need to spend money on additional instruction, counseling, student discipline, and monitoring—and these economic losses do not flow from their alleged physical or property damage. The question, then, is whether the economic loss doctrine in Florida, New York, Pennsylvania, and California would bar their negligence claims regarding these economic losses untethered to physical or property damage.
Florida and New York courts only apply the economic loss doctrine in cases involving contracts or product liability, which are not claims alleged by the Florida and New York government entity plaintiffs. See Tiara Condo. Ass‘n, Inc. v. Marsh & McLennan Companies, Inc., 110 So.3d 399, 407 (Fla. 2013) (“[W]e we now take this final step and hold that the economic loss rule applies only in the products liability context.“); In re Opioid Litigation, No. 400000/2017, 2018 WL 3115102, at *27 (N.Y. Sup. Ct. Jun. 18, 2018) (economic loss doctrine did not bar New York counties from recovering expense incurred in combatting opioid crisis because they did not assert a “cause of action against the manufacturer defendants for breach of
The doctrine is less straightforward in Pennsylvania and California. Pennsylvania courts follow a “‘reasoned approach’ to applying the economic loss doctrine that ‘turns on the determination of the source of the duty plaintiff claims the defendant owed.‘” Dittman v. UPMC, 649 Pa. 496, 525 (2018) (quoting Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 483 (2005)). The economic loss doctrine “is concerned with two main factors: foreseeability and limitation of liability.” Azur v. Chase Bank, USA, Nat. Ass‘n, 601 F.3d 212, 222 (3d Cir. 2010).
In Dittman, university medical center employees sued the university for negligence when their personal and financial information was accessed and stolen from the university‘s computer systems. The Pennsylvania Supreme Court found that the case “involve[ed] application of an existing duty to a novel factual scenario” and held that the employees plausibly pleaded a common-law duty in those circumstances. Id. at 513–14. It rejected the university‘s interpretation of Pennsylvania‘s economic loss doctrine, finding that “those cases do not stand for the proposition that the economic loss doctrine, as applied in Pennsylvania, precludes all negligence claims seeking solely economic damages.” Id. at 525 (emphasis added).
Although the employees’ claim did not squarely fit in the “negligent misrepresentation” exception to the economic loss doctrine previously delineated by the court, it found that negligent misrepresentation is simply “one among many tort claims in Pennsylvania for which the economic loss doctrine does not act as a bar for recovery of purely economic losses.” Id. at 526 (citing Bilt-Rite, 581 Pa. at 479). Because the employees plausibly pleaded that the university breached its common-law duty to act with reasonable care, and that duty “exist[ed] independently from any contractual obligations between the parties, the economic loss doctrine [did] not bar [e]mployees’ claim.” Id. at 528.
The analysis in Dittman indicates that Pennsylvania courts would not bar the school districts’ negligence claim. As discussed above, the school districts plausibly plead a common-law duty that arises independently from any contractual obligations, and finding a duty comports
There is no bright-line rule barring all negligence claims for purely economic losses in California either. Instead, the economic loss doctrine is part of the “duty” analysis and “[d]eciding whether to impose a duty of care turns on a careful consideration of the sum total of the policy considerations at play, not a mere tallying of some finite, one-size-fits-all set of factors.” S. California Gas Leak Cases, 7 Cal. 5th 391, 401 (2019).
JLI heavily relies on the Gas Leak Cases to foreclose the school districts’ negligence claims in California under the economic loss doctrine. In that case, residents in a Los Angeles suburb were forced to relocate due to a leak at a major natural gas storage facility, and the local economy was devastated as a result. Id. at 395–96. Business entities in the area sued for economic losses resulting from the loss of business previously generated by the relocated residents. Id. at 396. The California Supreme Court rejected the plaintiffs’ contention that the gas company had a tort duty to guard against purely economic losses. Id. 403–08. It noted that courts across the country, “[c]oncerned about line-drawing problems and potentially overwhelming liability,” have “rejected recovery for purely economic losses stemming from man-made calamity.” Id. at 403; see, e.g., 532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Ctr., Inc., 96 N.Y.2d 280, 290 (2001) (declining to hold “that a landowner owes a duty to protect an entire urban neighborhood against purely economic losses,” where business entities sought compensation for the income they lost from tower collapse in midtown Manhattan). “Based on concerns about limitless liability and unending litigation,” the court concluded that plaintiffs’ negligence claim for pure economic losses was barred. Gas Leak Cases, 7 Cal. 5th 391 at 403.
The circumstances in that case, involving a massive environmental disaster, are materially different from the school districts’ claims here. The school districts are not simply incidental victims; they plausibly plead that they were uniquely targeted by JLI‘s misconduct, who took its marketing scheme directly into schools. As discussed above, they sufficiently allege a common-law duty that comports with the Biakanja factors considered by California courts and involves “more than mere foreseeability.” Gas Leak Cases, 7 Cal. 5th at 401. Giving them their day in court does not run into same unlimited liability concerns at issue in the Gas Leak Cases. Id. at
At the hearing on these motions, JLI drew a distinction between the “contracting” and “non-contracting strangers” line of cases within the economic loss doctrine and argued that the “non-contracting strangers” line of cases in Pennsylvania and California bar the school districts’ negligence claims. But the “non-contracting strangers” line of cases is not as broad as JLI paints it to be, nor is it applicable here.
One basis for applying the “stranger rule” to bar negligence claims for pure economic harm is the concept that tortious acts causing pure economic harm are traditionally dealt with under the rules of specific or named economic torts that were developed to address particular kinds of economic harm cases. Dan B. Dobbs, Paul T. Hayden and Ellen M. Bublick, The Law of Torts, Chapter 48 § 608 (2d ed.). In an ordinary negligence action, the “stranger rule” may bar pure economic loss “that results solely because of negligence to another person.” Id. However, the treatise JLI relies on for the “stranger rule” states that “under some circumstances, a defendant may owe a tort duty to persons with whom the defendant has no contract, and when that occurs, he is of course subject to liability for breach of that duty.” Those are the circumstances here.
There is no issue of a specific economic tort, like interference with a contract, that could better redress the school districts’ alleged harm. Nor is this a situation where the school districts are “strangers” claiming economic harm based on JLI‘s negligence towards other people. Instead, the school districts plausibly plead that JLI directly owed them a common-law duty given the foreseeability and public policy considerations. Dobbs § 608 (cautioning that “it may be important to recognize that relationships of the parties may be neither clear-cut, direct-contract relationships nor total stranger relationships“); id. § 612 (cautioning that “a measured and careful delineation of the stranger rules and careful attention to the exceptions and other limitations is especially desirable“). The rationale behind the “non-contracting strangers” cases “involve concerns about unpredictable and limitless liabilities,” id. § 608, which are not at play in this case, or, at the very least, are not enough to warrant dismissal of the school districts’ claims at the
JLI‘s motion to dismiss the school districts’ negligence claims based on the economic loss doctrine is DENIED.
2. Altria
The same considerations regarding foreseeability and public policy discussed above apply to Altria as well. It contends that it could not have assumed a duty or breached a duty to the school districts because it did not market the product until it gained a 35% share of JLI in December 2018, and because it did not design, research, or manufacture the product at any time.
This argument ignores allegations that the government entities offer to explain how Altria helped to expand and maintain JLI‘s youth vaping market by, for example, acquiring shelf space to make room for JUUL in stores. TVC ¶ 472; see also id. ¶¶ 524–43 (Altria used its lobbying power to maintain “mint” as an available JUUL flavor while knowing that mint was a popular favor among teens); id. ¶¶ 46–47, 51 (Altria aligned its interests with JLI as early as Spring 2017 and worked together on expanding the youth e-cigarette market, long before Altria officially purchased 35% of JLI for $12.8 in December 2018); id. ¶¶ 224–27, 555 (Altria collaborated on the “cover-up” “Make the Switch” campaign to portray JUUL as a smoking cessation device for adult smokers and divert public attention from Altria‘s and JLI‘s true motive to maintain the valuable youth market).
As it did for the public nuisance claim, Altria‘s attempt to dispute these factual allegations is inappropriate at the pleading stage. Read together, these allegations plausibly allege that Altria placed the school districts in the “foreseeable zone of risk” by aiding JLI‘s marketing and public relations efforts and, thereby, increasing the availability of JUUL products pods for youth,
Additionally, the government entities sufficiently allege that Altria breached its duty of care by failing to act reasonably. They allege that Altria was fully aware of the problem of youth vaping created by JLI and its flavored pods yet pressed on to expand JUUL sales. Whether such conduct comports with a reasonable standard of care is an issue of fact not appropriate for determination on a motion to dismiss. See, e.g., Gipson v. Kasey, 214 Ariz. 141, 143 (2007) (describing the breach issue as “an issue of fact that turns on the specifics of the individual case“); L.A. Fitness Int‘l, LLC v. Mayer, 980 So.2d 550, 557 (Fla. Dist. Ct. App. 2008) (“[W]hether a defendant exercised reasonable care under a given set of facts is generally an issue for the jury to decide.“).
On balance, given the allegations regarding Altria‘s involvement in helping JLI protect and expand the youth e-cigarette market, the school districts plausibly plead that Altria owed them a duty of care and that it breached that duty. Altria‘s motion to dismiss the negligence claims is DENIED.
3. Officer and Director Defendants
Each Officer and Director Defendant argues that he owed no duty to the school districts, and some argue that the allegations of breach are also insufficient. For similar reasons discussed above, the school districts’ allegations about personal participation and the laws of each relevant state support the negligence claims against Monsees and Bowen, but not Pritzker, Huh, and Valani.
The school districts also adequately allege breach. They contend that Monsees and Bowen knew the harmful effects of nicotine on youth, the unparalleled potency of JUUL products, and that youth were buying JUUL products in droves. TVC ¶¶ 126–36; 391–411. Nonetheless, they coordinated efforts to greatly expand JUUL products’ reach. As discussed above, the school districts sufficiently describe what Monsees and Bowen did, in terms of marketing and/or product development, to target youth. Whether such conduct comports with a reasonable standard of care is an issue of fact not appropriate for determination on a motion to dismiss.
Although the school districts plausibly allege that Pritzker, Huh, and Valani, also knew about the youth-targeted marketing, they have not alleged enough to establish what negligent acts each did, whether individually or collectively, to create or support the youth e-cigarette crisis. At the hearing, the school districts emphasized that they do not seek to hold the entire Board of Directors liable for misconduct, but they fail to explain why these three Directors in particular should be part of the case.
Monsees and Bowen‘s motions to dismiss the negligence claims are DENIED. Pritzker, Huh, and Valani‘s motion to dismiss the negligence claim is GRANTED with leave to amend.
JLI and Altria challenge the government entities’ public nuisance and negligence claims for failure to allege a sufficiently close connection between their conduct and the alleged harms to show proximate causation. The parties evaluate proximate causation based on a “substantial factor” analysis and agree that the analysis is the same for both negligence and public nuisance. Dkt. No. 740 at 28–29 (arguing “[p]roximate causation generally requires that the defendant‘s acts substantially brings about the plaintiff‘s injury” and that the government entities’ injuries are “too attenuated“); Dkt. No. 817 at 46 (arguing proximate causation is sufficiently alleged because “Defendants were each a substantial factor in causing them harm“).
It appears that some courts conduct the substantial factor analysis in evaluating factual causation, not proximate or legal causation. See People v. ConAgra Grocery Products Co., 17 Cal. App. 5th 51, 101 (2017) (“The parties agree that the causation element of a public nuisance cause of action is satisfied if the conduct of a defendant is a substantial factor in bringing about the result.“) (citation omitted); id. at 104 (“[P]roximate cause is ordinarily concerned, not with the fact of causation, but with the various considerations of policy that limit an actor‘s responsibility for the consequences of his conduct.“) (internal quotation marks and citation omitted); but see Eckroth v. Pennsylvania Elec., Inc., 12 A.3d 422, 428 (Pa. Super. 2010) (“Proximate causation is defined as a wrongful act which was a substantial factor in bringing about the plaintiff‘s harm.“) But regardless of the correct label for the analysis, the dispute here primarily focuses on whether the government entities’ injuries are too attenuated or remote from the alleged conduct to plausibly plead proximate cause for their negligence and public nuisance claims.86
1. JLI
JLI contends that the government entities’ injuries are too attenuated because their injuries
The government entities do not seek to recover costs expended by students or any other third party. Nor do they seek compensation for any damages or personal injuries suffered by students who used JUUL. Rather, they allege injuries as a result of a public health crisis in their school districts and communities that JLI created and sustained through its negligent and nuisance-causing conduct, i.e., by developing a product with features that appeal to youth and then directly targeting youth with its marketing. The government entities suffered direct harm in combatting the crisis through multiple forms of costs and damages. TVC ¶¶ 597–609. The injuries caused by JLI were not only foreseeable, they were an intended consequence of JLI‘s conduct. Id. ¶¶ 77, 94, 583. Even if, as JLI contends, students deliberately using JUUL products at schools were intervening acts to the government entities’ injuries, those intervening acts were reasonably foreseeable given JLI‘s alleged youth-targeting conduct and do not undermine proximate cause.
JLI cites distinguishable cases brought by hospitals seeking damages for unreimbursed medical expenses related to tobacco use. See Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d 429, 435 (3d Cir. 2000); Ass‘n of Wash. Pub. Hosp. Dists. v. Philip Morris, Inc., 241 F.3d 696 (9th Cir. 2001). Judge Polster‘s discussion of these cases in the opioid multidistrict litigation is instructive. Although he was skeptical that West Boca Medical Center would be able to recover “unreimbursed charges for treatment of patients with opioid conditions,” as those were similar to the attenuated damages sought in Allegheny and Ass‘n of Wash. Pub. Hosp. Dists., he found that those cases were ultimately distinguishable because West Boca “presented sufficient factual allegations that at least some of their asserted injuries are a foreseeable result of the Defendants’ purported failures that allegedly created the opioid crisis,” including [i]ncreased operational costs
The government entities allege similar injuries in the form of operational costs that were directly borne by them, not passed on by any intermediate party. In re Nat‘l Prescription Opiate Litig. – Summit County, 2018 WL 6628898, at *5 (county sufficiently alleged proximate causation for RICO claims, where they alleged that they were forced to expend substantial and unexpected resources “to attempt to stop the flow of the excess opioids into local communities and to bear the costs associated with cleaning them up“); In re Opioid Litigation, 2018 WL 3115102, at *26–27 (New York counties “adequately pled[ed] that the alleged breach of the manufacturer defendants’ duty [] was a proximate cause of their injuries,” where they alleged spent “extraordinary amounts [] to combat the opioid crisis allegedly caused by the deceptive marketing campaign“); see also id. at *21 (finding defendants’ argument regarding lack of proximate causation for public nuisance claim was also unpersuasive).
JLI‘s proximate causation argument is insufficient to warrant dismissal at this stage. See id. at *27 (“Generally, issues of proximate cause are for the fact finder to resolve.“). The government entities plausibly allege a reasonably close causal connection between the alleged conduct (which created the youth e-cigarette epidemic) and the resulting injury (in combatting the youth e-cigarette epidemic).
Even if the more stringent RICO proximate causation standard were not satisfied, which it is see supra, the government entities’ state law claims still survive. City and County Of San Francisco, v. Purdue Pharma. L.P., 2020 WL 5816488, at *42 (N.D. Cal. 2020) (“Unlike RICO, courts place great emphasis on ‘foreseeability of harm’ in determining whether a public nuisance claim sufficiently alleges proximate cause.“); Sheperd v. Am. Honda Motor Co. Inc., 822 F. Supp. 625, 633 n.1 (N.D. Cal. 1993) (noting that even if RICO claims are dismissed, parties “remain free to pursue common law or statutory state law claims.“); see also City of Everett v. Purdue Pharma L.P., 2017 WL 4236062, at *6 (W.D. Wash. Sept. 25, 2017) (finding proximate causation was sufficiently pleaded for negligence claim because the alleged injury was foreseeable and finding
2. Altria
Altria‘s proximate causation argument similarly misconstrues the gravamen of the case and attempts to litigate the merits of the government entities’ claims. As discussed above, the government entity complaints sufficiently describe Altria‘s participation in sustaining and worsening the youth e-cigarette epidemic. Altria‘s attempt to rewrite the allegations by insisting that its alleged misconduct is narrow in both time and scope raise factual disputes that cannot be resolved on a motion to dismiss. For now, the government entity complaints sufficiently allege that Altria‘s conduct was a proximate cause in maintaining the public health crisis of youth e-cigarette use, resulting in numerous harms to the school districts and local governments. Altria‘s motion to dismiss for failure to plead proximate causation is DENIED.
E. Statutory Consumer Protection
Some of the school districts bring additional statutory consumer protection claims. Three Village brings claims under New York‘s consumer protection statute, sections 349 and 350 of the
The parties dispute whether I should apply Rule 9(b)‘s heightened standard for pleadings
1. New York Consumer Protection Law
JLI argues that Three Village fails to allege actual damages for its GBL claim. Altria and the Officer and Director Defendants contend that Three Village fails to allege that they engaged in a deceptive act in violation of statute.
a. JLI
When analyzing whether a plaintiff has standing to commence a private action pursuant to
In Blue Cross, plaintiff was one of several healthcare plans that commenced an action against tobacco companies alleging that they engaged in deceptive practices that misled the public regarding the harmful effects of smoking. 3 N.Y.3d at 203. The health plan sought to recover from the tobacco companies the cost of services that it had provided to plan subscribers as a result of those subscribers being harmed by the effects of smoking. Id. The New York Court of Appeals concluded that the health plan had “no standing to bring [the] action under General Business Law [section] 349 because its claims [were] too remote.” Id. at 208.
Four years later, in Smokes-Spirits, the City of New York sued out-of-state entities and persons engaged in the business of selling cigarettes over the internet. 12 N.Y.3d at 618. The City alleged that defendants’ websites misrepresented that their internet cigarette sales were tax free, and that their customers did not have to pay cigarette taxes. Id. at 620. The City claimed that it was injured by defendants’ deceptive acts “in an undetermined amount of unpaid cigarette taxes.” Id. The New York Court of Appeals concluded that the City lacked standing to assert an action premised on violations of section 349 because the City‘s claimed injury was “just as indirect as the insurer‘s was in Blue Cross.” Id. at 622.
In both Smokes-Spirits and Blue Cross, the court reached its conclusion based on the finding that the injuries alleged by each of the plaintiffs were “entirely derivative of injuries . . . suffered by misled consumers.” 12 N.Y.3d at 622; 3 N.Y.3d at 207. The rule derived from these cases is as follows: a plaintiff lacks standing to bring an action pursuant to
Three Village‘s complaint includes numerous examples of direct pecuniary harm sustained in combating the youth vaping epidemic allegedly created by JLI‘s conduct. These alleged injuries do not rely upon injuries sustained by any other individual, such as the damages or injuries suffered by student users of JUUL. The alleged injuries were incurred in fulfilling independent duties as educators and caretakers. Three Village claims that it was compelled to respond to the crisis by, for instance, diverting limited resources, devising educational campaigns, spending funds on monitoring systems, and incurring costs to alter the health curriculum. See TVC ¶¶ 597–609.
Similar allegations of actual damages were found sufficient by the court in In re Opioid Litigation, 2018 WL 3115100, at *6. In that case, multiple New York counties identified “forms of direct pecuniary harm incurred by the counties that correlate with the growth of the opioid epidemic.” Id. The complaint listed, among others, “direct financial losses the counties allegedly incurred in having to increase their expenditures on social services, drug addiction treatment and diversion programs, additional policing and criminal justice costs, as well as expenditures associated with the purchase of [opioid overdose reversal drug] and the implementation of programs to train the public and public personnel in its use.” Id. The court found the alleged harms were not “derivative in nature, as such harm was directly incurred by the counties because they bore independent duties, whether as municipalities constitutionally and statutorily mandated to protect the welfare, safety, and public health of their citizens or as self-funded health and workers’ compensation insurance providers, to make the expenditures necessary to meet such obligations.” Id.
Drawing inferences in Three Village‘s favor, the complaint sufficiently alleges actual damages that directly flow from responding to the youth vaping epidemic created by JLI‘s deceptive conduct. These independent injuries are unlike the derivative injuries at issue in Blue Cross and Smokes-Spirits. The health care plan‘s injuries in Blue Cross were derivative because had the plan subscribers not suffered smoking illnesses due to their consumption of the product, then the plans would not have incurred costs in reimbursing their medical expenses. New York
In reply, JLI argues that if the students had not been deceived into using JUUL products, then Three Village would not have to incur any of the alleged costs in responding to the students’ rampant use of JUUL products. This argument is unconvincing. The deception of the students is a harm that occurred independent of the harm suffered by Three Village. See M.V.B. Collision, Inc. v. Allstate Ins. Co., 728 F. Supp. 2d 205, 217–18 (E.D.N.Y. 2010) (distinguishing Blue Cross and Smokes-Spirits and finding vehicle repair shop had standing to bring GBL claims because “not only was the customer the victim of a deceptive practice, but Mid Island also suffered a loss of business or other injury” that was not derivative because it was not “solely as a result of injuries sustained by another party“). JLI‘s motion to dismiss Three Village‘s GBL claim is DENIED.
b. Altria
Altria moves to dismiss the GBL claim on grounds that Three Village fails to identify what it did that was deceptive. In response, Three Village points to two particular sets of allegations: (i) Altria assisted in the deceptive “Make the Switch” ad campaign; and (ii) deceived regulators to ensure that mint JUUL pods remained on the market. TVC ¶¶ 224–259, 470–503, 517–50.
Altria attempts to litigate the merits of Three Village‘s GBL claims by arguing that these actions were not in fact deceptive and did not contribute to the underage e-cigarette crisis. It argues that its dissemination of JUUL‘s “Make the Switch” advertisements was not a deceptive act because the statement that JUUL products are “alternatives” to cigarettes is undeniably true. This misses the point. Three Village is not arguing that the campaign was deceptive because JUUL products are not actually alternatives to cigarettes, but rather that the campaign was a misleading “cover-up” to convince the public that JUUL was always aimed at adult smokers and never marketed to youth, which in turn allowed the youth e-cigarette crisis to continue to grow. TVC ¶¶ 582–592, 621.
Whether Altria‘s conduct was actually deceptive is a merits question that will not be resolved at the pleadings stage. Buonasera v. Honest Co., 208 F. Supp. 3d 555, 566 (S.D.N.Y. 2016).89 At this juncture, Three Village has adequately identified the actions by Altria that were plausibly deceptive. See, e.g., In re Opioid Litigation, 2018 WL 4827862, at *8 (New York
c. Officer and Director Defendants
The Officer and Director Defendants argue that they cannot be held personally liable under the
“[A] corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced.” Reynolds, 136 F. Supp. 3d at 526. In Reynolds, plaintiff sued a medical alert device company and two individual defendants, the president and vice president of the company, alleging that they engaged in deceptive practices to induce customers to buy their products in violation of the New York consumer protection law. Id. at 508. The court dismissed the
One of the cases Reynolds discussed was Mayfield v. Asta Funding, Inc., 95 F. Supp. 3d 685, 690 (S.D.N.Y. 2015), where plaintiffs alleged that a debt-buying company, a law firm, and
Three Village’s allegations against Bowens and Monsees are more aligned with the specificity in Mayfield than Reynolds. It alleges more than mere knowledge or control by offering multiple examples about Monsees’ and Bowen’s personal and direct participation in the deceptive scheme at issue. For instance, it alleges that: Monsees and Bowen carefully studied the marketing strategies of the cigarette industry and developed the deceptive youth-focused marketing campaign for JUUL (TVC ¶¶ 68, 370–80); Monsees “personally reviewed images” from the “Vaporized” campaign and provided “specific direction on the content of the website (id. ¶¶ 318, 370); Bowen designed a highly addictive product that appealed to young users (id. ¶¶ 103–10; 143, 244); Bowen engineered test results consistent with the deceptive messaging (id. ¶¶ 194 – 201); and both had input and control over specific advertising, including flavor-driven and viral social media advertising, despite knowledge about the health risks and high nicotine concentration designed to addict (id. ¶¶ 377–80).
These factual allegations are sufficient at the pleadings stage to establish Monsees and Bowen’s personal liability under the
However, as discussed above, the allegations concerning Pritzker, Huh, and Valani are insufficient. New York courts require more than “mere awareness or control” to establish individual participation. Reynolds, 136 F. Supp. 3d at 526; Steven Madden, Ltd. v. Jasmin Larian, LLC, 2019 WL 294767, at *6 (S.D.N.Y. 2019) (granting dismissal of
2. Florida Consumer Protection Law
Broward and Escambia allege claims under the
The arguments against the
a. JLI
Proof of actual damages in necessary to sustain a
JLI argues that Broward and Escambia have not adequately alleged a claim for damages under the
The alleged damages here are similar to those asserted by Broward County in the opioid case that Judge Polster found sufficient in In re Nat’l Prescription Opiate Litig. – Broward County, 2020 WL 1986589, at *9. There, Broward County asserted thirteen categories of costs incurred as a result of the opioid epidemic, including costs associated with emergency response. costs for providing mental-health counseling, costs associated with law enforcement and public safety relating to the opioid epidemic, costs associated with increased burden on judicial systems, and losses caused by the decrease in funding available for public services for which funding was lost because it was diverted to other public services designed to address the opioid epidemic. Id. Here, in responding to the youth e-cigarette crisis created by JLI’s misconduct, not only did Broward and Escambia have to divert their limited resources to combat the problem of e-cigarette use among students, but they also incurred costs in, among other things, purchasing e-cigarette detection devices and cameras, paying for in-school and afterschool programs, and altering the
JLI’s motion to dismiss Broward’s and Escambia’s
b. Altria
Altria argues that Broward and Escambia fail to identify what it did that was deceptive under the Florida consumer protection statutes. This argument is unconvincing for the same reasons stated above concerning the
c. Officer and Director Defendants
The Officer and Director Defendants argue that Broward and Escambia do not allege that they personally participated in any violation of the
Broward and Escambia offer the same allegations about Monsees and Bowen’s individual participation in the alleged misconduct as Three Village; these allegations are sufficient for the same reasons discussed above. They are unlike the conclusory allegations Florida courts have found insufficient to plead individual liability under
But, like Three Village, Broward and Escambia fail to sufficiently describe how Pritzker, Huh, and Valani were “direct participant[s]” in the alleged misconduct. SIG, Inc. v. AT & T Digital Life, Inc., 971 F. Supp. 2d 1178, 1195 (S.D. Fla. 2013) (dismissing individual claims because complaint included a single conclusory allegation that individual defendants “participated directly in the violations”).
Monsees and Bowen’s motions to dismiss the
F. Personal Jurisdiction
The Officer and Director Defendants move to dismiss complaints filed outside of their respective home states for lack of personal jurisdiction. In MDL actions such as this one, the court is entitled to exercise personal jurisdiction over each defendant only to the same degree that the original transferor court could have. In re Dynamic Random Access Memory (Dram), No. C 02-1486 PJH, 2005 WL 2988715, at *2 (N.D. Cal. Nov. 7, 2005). Accordingly, I must evaluate the nature of the Officer and Director Defendants contacts in the relevant forum states with regard to the long-arm statutes of those states. Since Arizona, California, Florida, New York, and Pennsylvania all have long-arm statutes that authorize the exercise of personal jurisdiction to the fullest extent authorized by constitutional due process, personal jurisdiction is to be assessed with regards to federal due process. “And since federal law accordingly controls, this court will look to its own circuit as the source for federal law.” Id. (citation omitted).
The plaintiff bears the burden of demonstrating that the court has jurisdiction. Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1128–29 (9th Cir. 2003). However, the plaintiff must make “only a prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001). For the purposes of deciding whether a prima facie showing has been made, “the court resolves all disputed facts in favor of the plaintiff.” Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006).
Due process is determined under either a general or specific jurisdiction analysis. Bowen, Monsees, Pritzker, and Valani concede that they are subject to general jurisdiction in California,
The government entities argue that there is specific personal jurisdiction over each of their claims, and alternatively that there is pendent personal jurisdiction. As such, the relevant inquiry is whether they have made, or can make, a factual showing that warrants the exercise of specific personal jurisdiction under the standards espoused by the Ninth Circuit.
1. Specific Jurisdiction
Specific jurisdiction arises when a defendant’s specific contacts with the forum give rise to the claim in question. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414–16 (1984). “A court exercises specific jurisdiction where the cause of action arises out of or has a substantial connection to the defendant’s contacts with the forum.” Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1123 (9th Cir. 2002). The Ninth Circuit employs a three-part test to determine whether there is specific jurisdiction over a defendant:
(1) the non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant‘s forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e., it must be reasonable.
Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004).
The plaintiff bears the burden of satisfying the first two prongs of the test. Id. at 802. If the plaintiff fails to satisfy either of these prongs, personal jurisdiction is not established in the forum state. Id. If the plaintiff succeeds in satisfying both of the first two prongs, the burden then shifts to the defendant to “present a compelling case” that the exercise of jurisdiction would not be reasonable. Id.
To determine whether a defendant’s acts have had the requisite effects, courts assess whether the defendant “(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Levi Strauss & Co. v. J. Barbour & Sons Ltd., No. 3:18-CV-03540-WHO, 2019 WL 1117533, at *4 (N.D. Cal. Mar. 11, 2019). As the Ninth Circuit has explained, “purposeful availment is satisfied even by a defendant whose only ‘contact’ with the forum state is the ‘purposeful direction’ of a foreign act having effect in the forum state.” Schwarzenegger, 374 F.3d at 803 (internal quotation and citation omitted).
The government entities allege that Monsees, Bowen, Pritzker, Huh, and Valani developed the marketing strategy to target teens and then pushed for aggressive implementation of that strategy nationwide. See, e.g., TVC ¶¶ 1-3, 35–38, 44, 95–96, 156, 501–02. Those defendants allegedly directed and intended their actions at each of the forum states and nationwide.
The marketing strategy included control over messaging, particularly on JLI’s website. TVC ¶ 678. The website directly offers JUUL products for sale throughout the United States, and JUUL products are directly shipped to online purchasers throughout the United States, including in the forum states. See id. ¶¶ 204–08, 413–39. The age-verification function on the JUUL website requires users to identify their state of residence. Id. ¶¶ 418 (government identification required), 432 (describing auto-ship function). The website includes a “store locator” feature that allows users to find JUUL retails throughout the country. Id. ¶ 358. The marketing strategy also relied heavily on social media posting, which actively sends messages to JUUL social media followers throughout the United States, as well as in-person events and presentations throughout the country. Id. ¶¶ 343, 361–69, 394, 441, 444, 569–72.
The Officer and Director Defendants’ alleged authorization of and participation in tortious conduct, namely the youth-targeted conduct, can create jurisdictional contacts with respect to themselves as individuals:
If acts taken by a corporate officer subjects the officer to personal liability (i.e., the corporate officer authorized, directed or participated in tortious conduct), and those acts create contact with the forum state, such acts are not only acts of the corporation but also acts of the individual, and may be considered contacts of the individual for
purposes of determining whether long-arm jurisdiction may be exercised over the individual.
Chunghwa Telecom Glob., Inc. v. Medcom, LLC, No. 5:13-CV-02104-HRL, 2016 WL 5815831, at *6 (N.D. Cal. Oct. 5, 2016) (citation omitted); see also Quiksilver, Inc. v. Quick Sports Int’l B.V., 2005 WL 8157305, at *5 (C.D. Cal. May 11, 2005) (where defendants were directly involved product marketing, it would be it would be “erroneous” to grant a motion to dismiss on jurisdiction grounds); Davis v. Metro Prods., Inc., 885 F.2d 515, 520–23 & n.10 (9th Cir. 1989) (finding “mere association with a corporation that causes injury in the forum state” is not enough to exercise jurisdiction over an individual employee, but individuals can be liable when they are the “guiding spirit” or “central figure” in the wrongful conduct, and exercising jurisdiction over individual defendant shareholders).91
As noted above, the government entities have sufficiently alleged Bowen and Monsees’ role in the alleged youth-targeted misconduct. These allegations regarding Bowen and Monsees’ involvement in the development and implementation of the challenged nationwide marketing campaign and its intended effects in the forum states satisfy the first prong of the jurisdictional analysis.
The allegations about Pritzker, Huh, and Valani’s involvement are insufficient. But
b. Claims Arise Out Of Contacts
Claims “arise out of” forum-related contacts when those contacts are the “but for” cause of a plaintiff’s claims. Thus, courts ask whether the plaintiff would have been injured “but for” the conduct directed at the forum state. See Levi Strauss, 2019 WL 1117533, at *6 (citing Panavision Int’l, L.P. v. Toeppen, 141 F.3d 1316, 1322 (9th Cir. 1998)).
The government entities allege that “but for” the Officer and Director Defendants’ efforts to develop and maintain a nationwide youth nicotine market—by creating the product to appeal to youth, by marketing that product to youth nationally (including in the forum states), by establishing a nationwide distribution network, by establishing a website that offered JUUL for sale nationwide, and by taking orders and shipping products nationwide (including in the forum states)—they would not have been injured. The second prong of the jurisdictional analysis is satisfied, at least as to Monsees and Bowen, because the claims directly arise out of and relate to their forum-related contacts.
c. Reasonableness
With the first two factors established, the burden shifts to the Officer and Director Defendants to present a “compelling case” establishing that the exercise of jurisdiction over them is unreasonable. Levi Strauss, 2019 WL 1117533, at *4 (citation omitted). The factors to be considered in determining reasonableness include: “(1) the extent of the defendant’s purposeful
The Officer and Director Defendants have not satisfied their burden of making a “compelling case” for denying jurisdiction. As discussed above, the government entities have sufficiently alleged that each defendant, except the three Other Director Defendants, purposefully availed themselves to the forums at issue. The forum states therefore have a significant interest in remediating the youth e-cigarette crisis created by the alleged misconduct. On the other hand, the Officer and Director Defendants make no particularized argument that litigating cases outside of their home states would pose a hardship or other burden on them. Exercising personal jurisdiction in these circumstances comports with fair play and substantial justice.
Monsees and Bowen’s motions to dismiss for lack of personal jurisdiction are DENIED. The Other Directors’ motion is GRANTED with leave to amend.92
CONCLUSION
The motions to dismiss or stay under the primary jurisdiction doctrine are DENIED. Dkt. Nos. 626, 750.
The motions to dismiss based on federal preemption are DENIED. Dkt. Nos. 627, 750
The motions to dismiss the RICO claims are GRANTED and with leave to amend. Dkt. Nos. 628, 632, 645, 647.
The motions to dismiss the California claims are GRANTED in part and with leave to amend. Dkt. Nos. 629, 632, 748, 751, 752/778.
The motions to dismiss the Government Entity Complaints are GRANTED in part and
IT IS SO ORDERED.
Dated: October 23, 2020
William H. Orrick
United States District Judge
Notes
As this testimony was cited in plaintiffs’ CAC and this excerpt was quoted by plaintiffs themselves in their opposition, it is subject to judicial notice under the doctrine of incorporation. See Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001).
Defendants and plaintiffs ask me to take judicial notice of various documents and facts. In Dkt. No. 630, JLI asks me to take judicial notice of: (i) orders from other cases; (ii) FDA statements and press releases; (iii) JLI news and press releases; (iv) research journal and educational
In Dkt. No. 633, Altria asks me to take judicial notice of letters from Altria’s CEO to Congress and FDA and a copy of an Altria marketing initiative under doctrine of incorporation. That request is GRANTED, but not for truth of statements contained therein. Altria also requests judicial notice of: (i) two Altria SEC filings; (ii) filings from the Colgate case; and of (iii) an FDA press release. Judicial notice will be taken of the court filings and judicial notice will be taken of the existence of the SEC and FDA documents, but not for the truth of or meaning of disputed facts and statements therein.
In Dkt. No. 648, Monsees asks me to take judicial notice of the facts that he resigned from JLI on March 12, 2020, and is no longer an employee, officer, director, or adviser of the company. These facts do not appear to be disputed by plaintiffs, but given plaintiffs’ clarification regarding injunctive relief, the request is DENIED.
In Dkt. Nos. 739 & 880, Altria asks me to take judicial notice of: (i) a document summarizing PFS data from MDL Centrality; (ii) an FDA press release; (iii) and the complaint in the Colgate case. The request is granted as to the Colgate pleading, and granted as to the FDA press release (as to its existence, not the truth of the facts therein), but DENIED as to the PFS data summarized from MDL Centrality.
In Dkt. No. 759, plaintiffs ask me to take judicial notice of one statement on JLI’s website regarding mailing of JUUL products. The request is DENIED. In Dkt. No. 760, plaintiffs ask me to take judicial notice of facts regarding the FDA’s handling and processing of PMTAs. That unopposed request is GRANTED.