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In Re Hydroxycut Marketing v. Iovate Health Sciences Group

May 31, 2011

IN RE HYDROXYCUT MARKETING AND SALES PRACTICES LITIGATION
ANDREW DREMAK, ON BEHALF OF HIMSELF, ALL OTHERS SIMILARLY SITUATED AND THE GENERAL PUBLIC,
PLAINTIFF,
v.
IOVATE HEALTH SCIENCES GROUP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Honorable Barry Ted MoskowitzUnited States District Judge

(S.D. Cal. No. 09cv1088)

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS THE FIRST CLASS ACTION COMPLAINT CONSOLIDATED AMENDED

Pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6), and 9(b), defendants Iovate Health Sciences, Inc. and Iovate Health Sciences U.S.A., Inc., ( "Manufacturer Defendants" or "Iovate") and GNC Corporation, Wal-Mart Stores, Inc., Walgreens Company, CVS Caremark Corp., and Vitamin Shoppe Industries, Inc. ("Retailer Defendants") have filed a motion to dismiss the First Consolidated Amended Class Action Complaint. Defendants BJ's Wholesale Club, Inc., Kmart Corporation, Rite-Aid Hdqtrs. Corp., and NBTY Inc. have joined in the motion to dismiss.*fn1 For the reasons set forth below, the motion to dismiss is GRANTED IN PART and DENIED IN PART.

I. FACTUAL BACKGROUND

On December 22, 2009, the First Consolidated Amended Class Action Complaint ("complaint" or "FAC") was filed in this multi-district litigation. Twenty named plaintiffs ("Plaintiffs" or "named Plaintiffs") assert claims on behalf of themselves and a putative nationwide class of "[a]ll persons who purchased Hydroxycut-branded products." (FAC ¶ 83.) The Hydroxycut-branded products ("Products") consist of 14 specific Hydroxcut-branded products. (FAC ¶ 1.)*fn2

The following facts are taken from the allegations of the FAC. The Court makes no findings regarding the truthfulness of the allegations.

According to the FAC, Iovate advertised their products as being safe and effective for, among other things, weight loss, and spent tens of millions of dollars sending this message to consumers through an extensive advertising campaign in a variety of media, including television, newspapers, magazines, direct mail, the internet, point-of-sale displays, and on the product labels. It turns out, however, that certain ingredients in the products were unsafe and are associated with cases of severe hepatotoxicity and other serious health ailments. Moreover, the formula was never clinically proven to be effective for weight loss.

TheFAC specifically alleges that in 1999, Iovate announced the release of Hydroxycut-branded products -- Iovate's self-described "highly effective weight-loss supplement." (FAC ¶ 40.) Although Hydroxycut products are sold under various names, each contains herbal extracts that cause severe chemical-induced liver damage. (FAC ¶¶ 41-42.) One of the ingredients, garcinia cambogia, is a fruit native to Asia and Africa and used by very poor people to make meals more filling. (FAC ¶ 43.) Its main component, from which the name "Hydroxycut" is derived, is hydroxycitric acid ("HCA"). (Id.) HCA was initially studied in rodents as a possible treatment for obesity, but clinical studies failed to establish its effectiveness in humans. (FAC ¶ 43.)

Plaintiffs alleged that Iovate broadly marketed the Hydroxycut products through a variety of media, and both impliedly and expressly stated that the Hydroxycut products are safe and effective. (FAC ¶¶ 44-56.) For example, Iovate represented that the products are "clinically proven" to help consumers "lose weight fast," "increase energy," "burn calories," "control appetite," and that they are "doctor formulated," "backed by science," and "extremely safe," "without any unwanted side effects." (FAC ¶¶ 52-56.) The Products' packaging stated, "Hydroxycut really does work -- fast!" (FAC ¶ 54.)

According to Plaintiffs, Federal Trade Commission rules required that Iovate actually have the level of proof claimed -- i.e., clinical proof -- at the time the claims were made. (FAC ¶58.) However, there was no clinical proof of Hydroxycut's safety or efficacy. (FAC ¶¶ 53, 54, 58-71.) For example, in a study commissioned by Iovate, the subjects using Hydroxycut actually lost less weight than the placebo group. (FAC ¶ 59.) In fact, for nearly a decade, doctors and scientists have questioned the safety and efficacy of Hydroxycut products. (FAC ¶ 60.) Iovate's director of research until 2002 allegedly admitted, "the majority of products they put on their shelves don't have pure clinical research to support them." (FAC ¶ 59.)

As early as 2005, doctors began reporting cases of individuals presenting with rhabdomyloysis, hepatotoxicity, and other health problems after taking Hydroxycut. (FAC ¶¶ 63-68.) In April 2009, the FDA stated that "[t]hree lines of evidence derived from multiple disparate sources suggest it is very likely that exposure to Hydroxycut capsules/caplets can cause idiosyncratic hepatotoxicity." (FAC ¶ 75.)

On May 1, 2009, the FDA issued a press release warning consumers to immediately stop using Hydroxycut products based on reports of serious health problems ranging from jaundice and elevated liver enzymes to seizures, cardiovascular disorders, and rhabdomyolysis -- a condition which can lead to other serious health problems such as kidney failure. (FAC ¶ 77.) The FDA had received one report of a death due to liver failure. (Id.) A day after the FDA warning, Iovate announced a recall, but, according to Plaintiffs, continued to mislead and downplay the health risks associated with their products. (FAC ¶ 80.)

Plaintiffs allege that Defendants' advertising and marketing campaign was designed to cause consumers to buy Hydroxycut products. (FAC ¶ 82.) As a result of Defendants' advertising campaigns, consumers did buy the products and Hydroxycut became the top selling weight-loss supplement with over nine million units sold in 2008. (FAC ¶ 82.) Hydroxycut sales allegedly exceeded $350 million in a single year. (Id.)

According to the FAC, each of the named Plaintiffs was exposed to and read Defendants' advertising claims, including the representations on the Products' labeling. (FAC ¶¶ 7-26.) Each of the named Plaintiffs purchased Hydroxycut Products, believing they were safe and effective as a dietary supplement and for weight-loss purposes. (Id.) At the time Plaintiffs purchased and used the Products, Plaintiffs did not know that the Products posed serious adverse health risks and were not proven effective. (Id.) After learning of the potential serious health-risks associated with the consumption of the Products, Plaintiffs stopped consuming the Products. (Id.) As a result of their purchases of Hydroxycut, Plaintiffs have lost money and property, including the purchase price for the Products. (Id.) Some plaintiffs have also incurred costs of testing their health. (FAC, ¶¶ 170, 186.)

The FAC asserts the following claims: (1) violation of State Consumer Protection Laws on Behalf of Plaintiffs and a Nationwide Class; (2) violation of the Arizona Consumer Fraud Act, Ariz. Rev. Stat. § 44-1521 et seq.; (3) violation of the California Consumers Legal Remedies Act, Cal. Civ. Code §1750 et seq.; (4) Unlawful Business Acts and Practices in violation of Cal. Bus. & Prof. Code § 17200 et seq.; (5) violation of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201 et seq.; (6) violation of Florida Statutory False Advertising, Fla. Stat. §§ 817.06 and 817.40-817.47; (7) violation of Georgia's Fair Business Practices Act, Ga. Code Ann. § 10-1-390 et seq.; (8) violation of Louisiana's Unfair Trade Practices and Consumer Protection Law, La. Rev. Stat. § 51:1401 et seq. and § 51:411; (9) violation of Massachusetts' Consumer Protection Act, Mass. Gen. Laws ch.93A; (10) violation of the New Jersey Consumer Fraud Act, N.J. Stat. § 56:8-1 et seq.; (11) violation of § 349 of New York General Business Law: Deceptive Acts and Practices; (12) violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. § 201 et seq.; (13) violation of Texas' Deceptive Trade Practices-Consumer Protection Act, V.T.C.A. § 17.41 et seq.; (14) violation of West Virginia's Consumer Credit and Protection Act, W. Va. Code § 46A-6-101 et seq.; (15) breach of express warranty; (16) breach of implied warranty; and (17) unjust enrichment.

II. LEGAL STANDARDS

A. Fed. R. Civ. P. 12(b)(1)

Defendants challenge the complaint, in part, on the ground that Plaintiffs lack Article III standing. Standing under Article III of the U.S. Constitution is an element of subject matter jurisdiction. Therefore, Defendants move to dismiss the complaint for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1).

Generally, on a 12(b)(1) motion, unlike a 12(b)(6) motion, a court need not defer to a plaintiff's factual allegations regarding jurisdiction. But the Supreme Court has held that where a 12(b) motion to dismiss is based on lack of standing, the Court must defer to the plaintiff's factual allegations, and must "presume that general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (internal quotation marks omitted). "[G]eneral factual allegations of injury resulting from the defendants' conduct may suffice." Id. at 560. In short, a 12(b)(1) motion to dismiss for lack of standing can only succeed if the plaintiff has failed to make "general factual allegations of injury resulting from the defendant's conduct." Id. at 561.

B. Fed. R. Civ. P. 12(b)(6)

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed factual allegations are not required, factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965 (2007). "A plaintiff's obligation to prove the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not show[n] that the pleader is entitled to relief." Ashcroft v. Iqbal, __ U.S. __, 129 S,Ct. 1937, 1950 (2009) (internal quotation marks omitted).

C. Fed. R. Civ. P. 9(b)

Defendants contend that to the extent the plaintiffs' claims are grounded in fraud, the heightened pleading standards set forth in Fed. R. Civ. P. 9(b) apply. Rule 9(b) requires that a plaintiff state a claim for fraud with particularity as follows:

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

Fed. R. Civ. P. 9(b). A court may dismiss a claim of fraud when its allegations fail to satisfy Rule 9(b) 's heightened pleading requirements. Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d 1097, 1107 (9th Cir. 2003).

Averments of fraud must be accompanied by the "who, what, when, where, and how" of the misconduct charged. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). In other words, "the pleader must state the time, place and specific content of the false representations as well as the identities of the parties to the misrepresentation." Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392-93 (9th Cir. 1988). The plaintiff must also "set forth what is false or misleading about a statement and why it is false." Decker v. GlenFed, Inc. (In re GlenFed, Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994). Rule 9(b) does not permit a complaint to "lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant." Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2010) (internal quotation marks and citations omitted).

III. DISCUSSION

Defendants move to dismiss the FAC on the grounds that (1) Plaintiffs lack Article III standing; and (2) Plaintiffs' claims fail to state a claim and/or fail to plead fraud with particularity as required by Fed. R. Civ. P. 9(b). For the reasons discussed below, the Court concludes that Plaintiffs have standing to maintain this action. Therefore, the Court analyzes Plaintiffs' various claims to determine whether the claims should be dismissed under Rule 12(b)(6) and/or Rule 9(b). The Court separately analyzes Plaintiffs' claims against the Retailer Defendants in Section III.E - the other sections of the discussion pertain to the Manufacturer Defendants only. As detailed below, the Court grants in part and denies in part Defendants' motion to dismiss pursuant to Rules 12(b)(6) and 9(b), and grants Plaintiffs leave to amend their complaint.

A. Standing

Defendants first contend that this Court lacks subject matter jurisdiction over this action because Plaintiffs lack standing. Standing is a necessary element of federal-court jurisdiction under Article III of the Constitution. Warth v. Seldin, 422 U.S. 490, 498 (1975). To have standing to sue in federal court, a plaintiff must meet the requirements set forth in the so-called "Case or Controversy Clause" of Article III of the United States Constitution. U.S. Const. art. III, § 2. That is, a plaintiff must allege "'such a personal stake in the outcome of the controversy' as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Id. at 498-99 (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)). "[T]he plaintiff must have suffered an 'injury in fact' -- an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or ...


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