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Arora v. GNC Holdings, Inc.

United States District Court, N.D. California, San Francisco Division

November 15, 2019

RICHA ARORA, RANDY CLINTON, and WALTER JOHNSON, individually and behalf of all others similarly situated., Plaintiffs,
v.
GNC HOLDINGS, INC., Defendant.

          ORDER DENYING GNC'S MOTION TO DISMISS RE: ECF NO. 18

          LAUREL BEELER UNITED STATES MAGISTRATE JUDGE.

         INTRODUCTION

         The plaintiffs, who live in California (Arora and Clinton) and New York (Johnson), bought GNC dietary supplements and then - on behalf of themselves and putative nationwide, California, and New York classes of consumers - sued GNC Holdings, claiming that labels describing the supplements' functions (such as “Diabetic Support”) were unlawful because they did not include a disclaimer that is required under the Federal Food, Drug and Cosmetics Act (“FFDCA” or “Act”), 21 U.S.C. § 301 et seq., and the regulations implementing the Act.[1] Under the Act, if a product's label describes the supplement's function, then there must be an accompanying disclaimer (on the same panel) that the Food and Drug Administration (“FDA”) has not evaluated the description of function and that the supplement is not intended to diagnose, treat, cure, or prevent any disease.[2] 21 U.S.C. §§ 321, 343; 21 C.F.R. §§ 101.93(d). The plaintiffs also allege that in its marketing of the supplements, GNC “compounds” the harm from omitting the disclaimer by using misleading phrases (such as “clinically studied, ” “scientifically designed, ” “physician formulated,' or “physician endorsed”), using medical symbols, and referring to diseases.[3]

         The plaintiffs raise seven state-law claims: (1) unlawful conduct - based on the omitted FFDCA disclaimer and violations of two California consumer-protection statutes, the False Advertising Law (“FAL”) and the Consumers Legal Remedies Act (“CLRA”) - in violation of California's Unfair Competition Law (“UCL”) (on behalf of the California named plaintiffs and a California subclass); (2) unfair and fraudulent conduct, in violation of the UCL (on behalf of the California named plaintiffs and the California subclass); (3) false advertising, in violation of the FAL (on behalf of the California named plaintiffs and the California subclass); (4) deceptive practices, in violation of the CLRA (on behalf of the California named plaintiffs and the California subclass); (5) deceptive practices, in violation of New York's Consumer Protection from Deceptive Acts and Practices Law (hereafter, “New York Consumer Protection Law”) (on behalf of the New York named plaintiff and the New York subclass); (6) false advertising, in violation of the New York Consumer Protection Law (on behalf of the New York named plaintiff and the New York subclass); and (7) unjust enrichment (quasi-contract) (on behalf of the named plaintiffs and the nationwide class).[4]

         GNC moved to dismiss the following claims on the following grounds: (1) claim one (unlawful conduct under the UCL), on the ground that the plaintiffs lack standing because they did not allege reliance sufficiently under relevant precedent; (2) claims two, three, and four (essentially, deceptive practices under the UCL, FAL, and CLRA), on the ground that the plaintiffs did not allege fraud with particularity; (3) claims one, two, and three (the UCL and FAL claims), on the ground that the weight of the authority requires dismissal of UCL and FAL equitable claims when plaintiffs assert a CLRA claim; (4) claims five and six (deceptive practices and false advertising in violation of the New York Consumer Protection Law), on the ground that the plaintiffs did not identify the false and misleading statements; and (5) claim seven (unjust enrichment), on the ground that the plaintiffs did not allege any actionable conduct by GNC.[5]GNC also contends that the plaintiffs lack standing (1) to seek injunctive relief and (2) for any relief for products that they did not purchase.[6] The court denies the motion to dismiss.

         STATEMENT[7]

         1. The Overall Nature of the Claims and the Regulatory Scheme

         The complaint first specifies that the plaintiffs seek recovery based on GNC's practices regarding the marketing and sale of its “proprietary brand dietary supplements . . . including but not limited to” GNC Men's Prostate Formula Dietary Supplement, GNC Diabetic Support Dietary Supplement, GNC Preventive Nutrition Healthy Blood Pressure Formula Supplement, GNC Women's Ultra Mega Active Supplement, and GNC Mega Men Healthy Testosterone.[8]

         The plaintiffs then categorize the three “types of claims” that they assert. First, they assert unlawful claims based on the FFDCA violation, which (they allege) is incorporated into California's Sherman Food, Drug, and Cosmetic Law (“Sherman Law”), which is actionable under the UCL.[9] Second, they assert “misleading and deceptive” marketing claims “because GNC labeled, marketed, and sold the Supplements in a manner that is unfair, deceptive, and untrue in violation of California's UCL and New York's Consumer Protection from Deceptive Acts and Practices Law . . . .”[10] Third, they assert common-law claims for unjust enrichment.[11]

         The plaintiffs then describe the regulatory scheme for the products and the legal basis for their claims.

5. With respect to Plaintiffs' “unlawful” claims, GNC is prohibited from labeling, marketing, or selling dietary supplements bearing claims that “describe[] the role of a nutrient or dietary ingredient intended to affect the structure or function in humans, [or that] characterize[] the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function” (known as “structure/function claims”), unless the label carries a prominent disclaimer on each panel bearing such claims. See 21 U.S.C. §§ 321(g)(1), 331(d), 343(r)(1)(B), 343(r)(6), 355(a); 21 C.F.R. § 101.93(d) (“On product labels and in labeling (e.g., pamphlets, catalogs), the disclaimer shall appear on each panel or page where there [is a structure/function claim].”).
6. The disclaimer must be prominent and bolded, and it must read: These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. 21 U.S.C. § 343(r)(6)(C); see also 21 C.F.R. § 101.93(b)-(e).[12]

         The plaintiffs allege that “GNC Supplements” do not have the required disclaimers “on all panels with structure/function claims, and/or the disclaimer lacks the prominence required.”[13] As a result, they assert, GNC's failure to include the disclaimer means that the supplements are “misbranded and unlawful. 21 U.S.C. § 343(r)(1)(B), (r)(6); 21 C.F.R. § 101.93(d).”[14]

         GNC's sale of the supplements is also unlawful, the plaintiffs allege, because the supplements are “drugs” that lack FDA pre-market approval.[15] More specifically, the supplements are “‘drugs' under the FFDCA since GNC markets them with structure/function claims but does not include the disclaimers. See 21 U.S.C. §§ 321(g)(1), 343(r)(6). In order to avoid being regulated as drugs under the FFDCA, dietary supplements bearing structure/function claims must comply with the disclaimer requirements. Id.[16]

         Also, “[d]rugs require pre-market approval from the . . . FDA[]. 21 U.S.C. §§ 331(d), 355(a).”[17] “Upon information and belief, GNC lacks pre-market approval for its Supplements, rendering them not just misbranded but unapproved drugs.[18] “Misbranded dietary supplements and/or unapproved drugs are unlawful and cannot be sold legally. 21 U.S.C. §§ 331, 333. Under Section 110760 of the Sherman Law, they have no economic value and are worthless.”[19]

         For claims predicated on GNC's “deceptive and misleading” practices, “GNC deceptively labels, markets, and sells the Supplements as having been subjected to the FDA's pre-market approval process; and/or intended to prevent, cure, or treat a disease or health-related condition linked to disease.”[20] It “compounds” its deceptive omission of the required disclaimer by using “misleading phrases like ‘clinically studied,' ‘scientifically designed,' ‘physician formulated,' or ‘physician endorsed,' and [using] . . . medical symbols, and/or by referencing diseases and/or conditions equated with disease in its marketing of the Supplements.”[21]

         In a later section of the complaint, the plaintiffs explain more about the regulatory framework. Under the FFDCA, a “drug” is defined, in part, as an “‘article[] intended for use in the in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals'” or an “‘article[] (other than food) intended to affect the structure or any function of the body of man or other animals.'”[22] Under 21 U.S.C. §§ 331(d) and 355(a), the FDA must approve new drugs before they can be sold on the market.[23] The FFDCA creates an exemption from this pre-approval process for supplements “‘intended to affect the structure or function of the body'” if the supplements carry a prominent FDA disclaimer: “‘This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.'”[24] The disclaimer “must appear ‘on each panel or page' of a supplement label or package that bears a health-related claim, 21 C.F.R. § 101.93(d), and it must be prominent. 21 U.S.C. § 343(r)(6).”[25] “To be prominent, the disclaimer may not be crowded with non-required, or voluntary, information or imagery and additionally must use bolded font at least 1/16th of an inch in size.”[26] “Failure to abide by the disclaimer requirements renders non-compliant supplements misbranded, unapproved, and unlawful drugs under federal law. 21 U.S.C. §§ 321(g)(1), 331(d), 343(r)(6), 355(a).”[27] California's Sherman Law expressly adopted federal labeling requirements.[28]

         The complaint explains why the regulatory scheme is important for consumer safety. The disclaimer requirement aligns with the FDA's recognition that “‘few dietary supplements have been the subjects of adequately designed clinical trials.'”[29] Without the disclaimer, structure/function claims convey therapeutic drug claims, thereby encouraging self-treatment without the benefit of a medical diagnosis or treatment.[30] The point of the disclaimers are to “‘make sure that consumers understand that structure/function claims are not reviewed by [the] FDA prior to marketing, and to caution consumers that dietary supplements bearing such claims are not for therapeutic uses.'”[31]

         2. The Parties and the Plaintiffs' Purchases

         GNC is a Delaware corporation with its principal place of business in Pennsylvania.[32] It owns, operates, and franchises 4, 026 retail locations (including 2, 989 that it owns and manages directly and 269 in California alone).[33] GNC requires all retail locations to display and sell GNC supplements, and it controls the marketing and labeling for its supplements.[34]

         Richa Aurora and Randy Clinton reside in California, and Walter Johnston resides in New York.[35] During the relevant class period, they bought GNC-branded products.[36] The complaint has the following general allegations about the plaintiffs' reliance on the labels and marketing of the supplements.

         14. Plaintiffs and the members of the Class reviewed and reasonably relied on GNC's Supplement labels and packaging when purchasing them and were misled by GNC's marketing.

         15. Had Plaintiffs known that the Supplements were misbranded, unlawful, lacked government review and approval, and/or were not intended to treat, cure, or prevent any disease (that is, were not intended for therapeutic purposes), Plaintiffs would not have purchased them.

         16. Owing to their reliance on GNC's deceptive labeling, marketing, and sales of the Supplements, Plaintiffs and the members of the Class purchased GNC Supplements believing them to have characteristics and qualities that they do not have. Plaintiffs and the members of the Class have been injured because they would not have purchased the Supplements or paid as much had they known the truth.[37]

         The plaintiffs allege the following about their individual purchases and reliance.

         Ms. Aurora bought the following GNC supplements (“and other Supplements”) from the GNC store at the Northpoint Shopping Center on Bay Street in San Francisco, California: (1) “GNC Prostate Health Supplement” for her father and (2) “GNC Women's Ultra Mega Active Supplement” for her own use.[38] Mr. Clinton bought “GNC Diabetic Support Supplement[] and other Supplements” from the GNC store at the West Valley Mall in Tracy, California.[39] Mr. Johnston bought “GNC Mega Men Performance and Vitality Mega Vitapaks, among other Supplements, ” from the GNC store at the Chautauqua Mall on East Fairmont Avenue in Lakewood, New York, and in in Pennsylvania.[40]

         The plaintiffs believed that the supplements were “lawful, correctly branded, subject to a governmental review and approval process, and had therapeutic value, including that they were intended to prevent or treat disease, including” prostate disease (for Ms. Arora), diabetes (for Mr. Clinton), and “prostate, circulation, and overall medical health” (for Mr. Johnston).[41] Ms. Arora and Mr. Clinton relied on GNC's marketing of the supplements (“both implied and expressed”) when they bought them.[42] All paid more for the supplements, and bought more of them, than they would have “had [they] known the truth about” the products, and thus they all lost money (by paying more for the products).[43] All would buy the supplements in the future if they knew that GNC's marketing and sales of the supplements were “lawful, truthful, and non-misleading, ” but they cannot buy them now because they “cannot be confident” that the sales, labels, and advertising are lawful, truthful, and non-misleading.[44]

         In a separate section titled “Economic Injury, ” the plaintiffs assert the following:

77. When purchasing the GNC Supplements, Plaintiffs read and relied on GNC's labeling and marketing claims.
78. Based on the Supplements' labeling, Plaintiffs believed the GNC Supplements had the aforementioned characteristics and benefits, including that they were lawful.
79. As a result, Plaintiffs received GNC Supplements that lacked the characteristics and/or benefits that they reasonably believed the products had.
80. Plaintiffs would not have purchased the GNC Supplements, purchased as many of them, and/or paid as much for them absent these sales, misrepresentations, and labeling and marketing practices.
81. Plaintiffs lost money as a result of GNC's unlawful and deceptive and misleading conduct because Plaintiffs did not receive the products for which they believed they paid.
82. Plaintiffs altered their position to their detriment and suffered damages in an amount equal to the amounts they paid for the GNC Supplements they purchased.
83. Plaintiffs would purchase the GNC Supplements again in the future should they have the characteristics and/or the benefits marketed and labeled.
84. By engaging in unlawful sales and/or deceptive and misleading marketing, GNC reaped, and continues to reap, increased sales and profits, including with respect to its competitors.
85. GNC knows that the qualities and characteristics it labels and markets, as well as its omissions, are material to a consumer's decision to purchase its Supplements.
86. GNC deliberately cultivates these misperceptions through its marketing and labeling of its Supplements. Indeed, GNC relies and capitalizes on consumer misconceptions about its Supplements.[45]

         3. The Labels

         The plaintiffs allege that GNC fails to include the required disclaimer “in labeling and marketing its Supplements.”[46] The complaint gives some examples.

         “GNC's Diabetic Supplement . . . omits the disclaimer from the front panel of the packaging . . . or the side panel, despite the presence of structure/function claims on both panels.”[47]

         (Image Omitted) [48], [49]

         GNC also omits the disclaimer from the front panel of the Diabetic Supplement and instead puts a non-compliant disclaimer on the back panel, “where, even there, it is rendered non-prominent by a variety of voluntary claims.”[50]

         The label for the GNC Mega Men Diabetic Support supplement makes the following claims: “Multivitamin with premium ingredients to support glucose metabolism;” “Provides key nutrients to help promote normal glucose utilization & insulin production;” and “Supports circulatory, heart & eye health with advanced nutrient blends.” The side panel makes the following claim: “Why should I use it? It is scientifically designed for the special dietary needs of people with diabetes. Use it with the enclosed nutritionally balanced diet suitable for persons with diabetes to help maintain healthy blood sugar levels.”

         (Image Omitted) [51]

         The plaintiffs next give examples of GNC s deceptive and misleading labeling and packaging claims. “GNC compounds its deceptive marketing with authoritative sounding embellishments like ‘clinically studied,' ‘scientifically formulated,' and ‘physician endorsed,' and by implying therapeutic properties by referencing diseases or conditions linked to disease.”[52] Its website “embraces the deception.”[53] For example, a verified purchaser of Diabetes Support posted that it kept her “glucose and A1C in check, ” another said that “GNC Mega Men Diabetic Support . . . help[ed] in keeping my sugars down, ” and a third posted that it helped “stabilize sugars.”[54]

         The plaintiffs then allege that “GNC's omission of the mandatory disclaimers from Supplement panels is systemic”[55] and identify the following front labels that lack disclaimers.

         (Image Omitted) [56]

         (Image Omitted) [57], [58], [59], [60], [61]

         As an example of a product that properly displays the “mandated disclosure on the front panel of their labels and elsewhere where structure/function claims appear, ” the plaintiffs identify Target's “Up & Up” dietary supplements, where the “disclaimers are not so crowded by voluntary statement and imagery as to lose prominence.”[62]

         (Image Omitted)[63]

         4. Classes

         The complaint defines the following subclasses as, collectively, “constituting] the ‘Class.'”[64]

The California Subclass. All persons residing in the State of California who purchased one or more GNC proprietary brand supplements within the applicable limitations period.
The New York Subclass. All persons who purchased one or more of GNC proprietary brand supplements in the State of New [York] within the applicable limitations period.
The Nationwide Subclass. All persons in the United States who purchased one or more GNC proprietary brand supplements within the applicable state limitations periods.[65]

         5. Relevant Procedural History

         The complaint has seven state-law claims: (1) unlawful conduct - based on the omitted FFDCA disclaimer and violations of the FAL and CLRA - in violation of the UCL, Cal. Bus. & Prof. Code § 17200 et seq. (on behalf of the California named plaintiffs and a California subclass); (2) unfair and fraudulent conduct, in violation of the UCL (on behalf of the California named plaintiffs and the California subclass); (3) false advertising, in violation of the FAL, Cal. Bus. & Prof. Code § 17500 et seq. (on behalf of the California named plaintiffs and the California subclass); (4) deceptive practices, in violation of the CLRA, Cal. Civ. Code §§ 1750 et seq. (on behalf of the California named plaintiffs and the California subclass); (5) deceptive practices, in violation of the New York Consumer Protection Law, N.Y. Gen. Bus. Law §§ 349, 350 (on behalf of the New York named plaintiff and the New York subclass); (6) false advertising, in violation of the New York Consumer Protection Law (on behalf of the New York named plaintiff and the New York subclass); and (6) unjust enrichment (quasi-contract) (on behalf of the named plaintiffs and the nationwide class).[66] All parties consented to magistrate-judge jurisdiction.[67] The court held a hearing on GNC's motion to dismiss on October 17, 2019.

         STANDARD OF REVIEW

         GNC moves to dismiss the claims for lack of standing and for failure to state a claim, including a failure to plead fraud with particularity under Rule 9(b).[68] The relevant standards are as follows.

         1. Rule 12(b)(1)

         A complaint must contain a short and plain statement of the ground for the court's jurisdiction. Fed.R.Civ.P. 8(a)(1). The plaintiff has the burden of establishing jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); Farmers Ins. Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 912 (9th Cir. 1990).

         A defendant's Rule 12(b)(1) jurisdictional attack can be either facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). “A ‘facial' attack asserts that a complaint's allegations are themselves insufficient to invoke jurisdiction, while a ‘factual' attack asserts that the complaint's allegations, though adequate on their face to invoke jurisdiction, are untrue.” Courthouse News Serv. v. Planet, 750 F.3d 776, 780 n.3 (9th Cir. 2014). This is a facial attack. The court thus “accept[s] all allegations of fact in the complaint as true and construe[s] them in the light most favorable to the plaintiffs.” Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

         Standing pertains to the court's subject-matter jurisdiction and thus is properly raised in a Rule 12(b)(1) motion to dismiss. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1121-22 (9th Cir. 2010).

         2. Rule 12(b)(6) and Rule 9(b)

         A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon which they rest. Fed.R.Civ.P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not need detailed factual allegations, but “a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a claim for relief above the speculative level . . . .” Twombly, 550 U.S. at 555 (internal citations omitted).

         To survive a motion to dismiss, a complaint must contain sufficient factual allegations, which when accepted as true, “‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557) (internal quotations omitted).

         “In alleging fraud . . ., a party must state with particularity the circumstances constituting fraud. . . . Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). This means that “[a]verments of fraud must be accompanied by the ‘who, what, when, where, and how' of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). Like the basic “notice pleading” demands of Rule 8, a driving concern of Rule 9(b) is that defendants be given fair notice of the charges against them. In re Lui, 646 Fed.Appx. 571, 573 (9th Cir. 2016) (“Rule 9(b) demands that allegations of fraud be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.”) (quotation omitted); Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (Rule 9(b) requires particularity “so that the defendant can prepare an adequate answer”).

         3. ...


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