Monday, May 09, 2011

Rikos v. Procter & Gamble Co., --- F. Supp. 2d ----, 2011 WL 1707209 (S.D. Ohio)

Rikos brought a putative class action under California law based on PG’s alleged misrepresentations about a daily food supplement, Align, which P&G claims is made of a special formulation of "probiotic" bacteria that builds and maintains a healthy digestive system, restores natural digestive balance, and protects against digestive upsets. P&G allegedly falsely represents that these benefits are clinically and scientifically proven, using the tagline “Great digestion through science,” along with statements such as "Recommended by Gastroenterologists" and "Proof: Bifantis has been the subject of several clinical studies and has been featured in peer-reviewed journals. Please see for full details." The website contains scientific information and data.

P&G allegedly makes these claims prominently and conspicuously on every Align package, and emphasizes and repeats them through a variety of advertising media including television commercials, point of sale displays, and the Internet. Rikos alleged that the claims are false and misleading; for example, P&G’s own clinical trial found no statistically significant differences between the Bifantis group and the control group. Other clinical data analyzed patients with irritable bowel syndrome, and not Align's target audience, the general population, tested endpoints irrelevant to the advertised claims and amounts of the bacteria materially different from those in a serving of Align. And so on.

As the court summarized, Rikos alleged that Align is nothing but sugar-filled capsules with a small amount of unremarkable bacteria that nonetheless cost more than $1 per pill.

P&G argued that Rikos failed to satisfy Twombly and Iqbal, because Rikos was only alleging that its claims aren’t adequately substantiated. The court disagreed. Rikos alleged that the statements at issue (which included explicit “tests prove” claims) are false and misleading, just as required.

P&G also argued that the complaint should be dismissed under the primary jurisdiction doctrine, letting the FDA go first. The court disagreed because no agency expertise was required to resolve the legal claims here. This was not a case of an issue of first impression or a particularly complicated issue committed in the first instance to a regulatory agency, but a case about whether P&G’s ads are likely to deceive reasonable consumers, the type of judgment courts make every day. Further, there was no evidence that the FDA actually had any interest in investigating the claims here; also, state law false advertising claims would not necessarily be resolved by an FDA ruling.

P&G had slightly more success with its Article III standing argument. Rikos alleged injury in fact, here economic injury: he bought Align in reliance on P&G’s claims for a health benefit. P&G argued that buying a product isn’t sufficient economic injury, but Rikos properly alleged that he relied on false claims to buy the product, thus losing money that he should be able to get back. However, P&G succeeded in kicking out the injunctive relief request, because despite the broad availability of injunctive relief under California law in California courts, Rikos doesn’t need injunctive relief—he now knows the product is bunk—and he can’t assert other class members’ interests under federal precedents. This seems bizarre to me.

Here’s the quoted case: Hodgers-Durgin v. de la Vina, 199 F.3d 1037, 1045 (9th Cir.1999) ("Unless the named plaintiffs are themselves entitled to seek injunctive relief, they may not represent a class seeking that relief. Any injury unnamed members of this proposed class may have suffered is simply irrelevant to the question whether the named plaintiffs are entitled to the injunctive relief they seek."). However, Hodgers-Durgin was a case seeking only injunctive relief via a declaratory judgment; it seems to me that Rikos’s valid damages claim, which concededly gives him Article III standing (and at this stage entitle him to purport to represent a class for damages purposes), should entitle him to seek other forms of relief for the same set of people. I was under the impression that Article III standing was about who could sue, and that if a plaintiff’s injury is sufficiently like others’ s/he could ask for remedies on behalf of a class. The court thought that the express language of the California law appeared to give Rikos the right to seek an injunction on behalf of the class, but “the case law appears clear on its face, and Plaintiff fails to produce any authority to the contrary.” Thus, a plaintiff might have standing to seek an injunction in California state court and not in federal court.

Anyway, P&G also challenged standing under the California statute based on the injury in fact/lost money or property requirement of the UCL. Plaintiffs who can truthfully allege that they were deceived into spending money to buy a product they wouldn’t have bought otherwise have lost money or property within the meaning of the law. P&G argued that Rikos didn’t lose money if he received the benefit of the bargain, but courts have rejected this reasoning, and in any event, Rikos alleged that he didn’t receive the product he paid for: a product that would provide proven digestive health benefits.

A plaintiff must also plead reliance: a causal connection between exposure to the false claims and purchase of the products. An inference of reliance arises when a reasonable person would attach importance to a misrepresentation in deciding what to do. Rikos alleged that he read and relied on the Align label before he bought. P&G argued that this was insufficient because he needed to identify specific representations on the label. (Rikos also attached 10 pictures of Align packaging/labeling with the relevant language to the complaint.) The court concluded that it was unclear whether reliance had to be pled with specificity, and in any event the allegations were specific enough to give P&G sufficient notice of the claim and lay out the causal connection between reading the label and buying the product, given that Rikos attached the actual label on which he relied.

P&G then tried to cut down on the scope of the claims by arguing that Rikos could only challenge the label and not other ads. The court was skeptical of the idea that every class action needs a representative for every type of ad—radio, TV, internet, newspaper, etc. Here, Rikos alleged that all the Align ads carried the same message. P&G argued that the packaging changed over time, but at the pleading stage that didn’t defeat the allegations that all the ads carried the same message.

Note: compare the NJ Supreme Court’s ruling in Lee v. Carter-Reed.  From the court’s discussion, it seems that digestive benefits are the only benefits promised by the product. On the Lee logic, if that’s the case, then falsity of the digestive benefits claims means that all consumers are properly included in the class, since no matter what they saw and what they relied on, all the reasons offered to buy the product are false.

False advertising claims under the UCL and CLRA sound in fraud and thus must meet Rule 9(b)’s heightened standard. The heightened standard requires fair notice, not super-exacting detail. Here, Rikos attached the ads he relied on to the complaint, alleged when and where they were made ("Internet, in-store sampling, point of sale displays, and on the Align probiotic supplement's labels and labeling," starting March 2009 and continuing until the filing date), and explained why the statements were likely to deceive the reasonable consumer—they were unsubstantiated. Additional details were the appropriate subject of discovery.

The UCL borrows violations of other laws and makes them independently actionable. Here, violation of the California Health & Safety Code (misbranding) was sufficient. What about a violation of the FDCA? The FDCA doesn’t itself provide for private enforcement. And courts can’t decide issues that require FDA determination in the first instance. But allegations that ads are literally false and misleading don’t depend on FDCA interpretations, and thus the FDCA could provide a predicate for the UCL. So could claims for fraud and deceit.

Rikos sought restitution and disgorgement under the CLRA, but didn’t comply with the prefiling notice requirements needed to seek damages under the CLRA. The court agreed that restitution and disgorgement are not “damages” under the CLRA, and thus notice was not required. Also, in what seems like a move that’s becoming standardized, Rikos notified P&G of the CLRA violations along with the original complaint, requested that they be rectified, and notified P&G that the complaint would be amended to seek damages if P&G didn’t agree to correct the violations within 30 days. Rikos then did as promised. The court was okay with that.

The court also refused to dismiss the breach of express warranty claim. The elements: (1) the seller's statement constitutes an affirmation of fact or promise, or a description of the goods; (2) the statement was part of the basis of the bargain; and (3) the warranty was breached. Reliance is not an element. P&G argued that Rikos failed to identify the express affirmations of fact or the breach. The court disagreed: Rikos alleged that the promises were made on the Align product labels and ads and became part of a standardized contract between P&G and the class members.

Finally, P&G argued that Rikos couldn’t pursue California claims on behalf of a proposed class that includes out-of-state residents. “California statutory remedies may be invoked by out-of-state parties, but only when they are harmed by conduct occurring in California. The complaint does not contain any allegations that P&G's alleged conduct occurred in California ….” The court thought this argument appeared meritorious on its face, but it was premature to rule on the issue without a motion for class certification and related briefing.

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