This December 2009 opinion just showed up in my Westclip search, and it addresses an area of interest to me so I’m including it.
Hansen moved to dismiss defendant’s false advertising counterclaim. Defendant, dba Living Essentials, produces a two-ounce “energy shot” under the 5-Hour Energy brand. Hansen produces energy products under the names Hansen, Monster, and Lost.
First, Hansen argued that Living Essentials was actually, and illegitimately, attempting to enforce the FDCA. The allegations were that Hansen’s ads were false and misleading in that they (1) promoted Hansen products as a way to get intoxicated; (2) misled as to calorie and sugar content; (3) misled as to energizing effect; and (4) misbranded Hansen products as dietary supplements. So, do these claims require interpretation and enforcement of FDA regulations on a matter on which the FDA has not yet ruled? Or has the FDA taken a position such that the court can determine whether a statement is false, whether or not that requires reference to FDA standards/definitions?
On intoxication, Living Essentials argued that Hansen markets its products as safe to mix with alcohol or for young children to consumer. Hansen “allegedly posts alcoholic drink recipes on its website, targets youths by sponsoring young athletes at sports events, and promotes at college campuses, bars, and nightclubs.” This is allegedly dangerous because it leads to more drinking and because Hansen doesn’t disclose the caffeine or guarana content of its products. Hansen’s products are thus allegedly “adulterated” in violation of California’s Sherman Law because they “present an unreasonable risk of illness or injury when used as directed or marketed.” California hasn’t approved the use of energy products as “food additives” to alcohol.” Moreover, promotion of products labeled “dietary supplements” as intoxicants allegedly constitutes misbranding.
The court found that this claim was not solely governed by the FDCA or FDA regulations, which don’t cover the use of caffeinated drinks as alcohol mixers. Nor was it clear that the FDA has attempted to deal with this issue, or even has the responsibility do so. Hansen itself noted that the FDA has never regulated what consumers can do with food they have bought. The core of the falsity/misleadingness claim was that the suggestion that it’s safe to mix caffeinated beverages with alcohol is false. Living Essentials can use FDA regulation to establish the standard or duty defendants allegedly failed to meet. Moreover, it can establish the falsity of this claim through other evidence.
Calorie/sugar content statements: Many of Hansen’s products are sold in 16-ounce cans that supposedly contain two servings, such that the nutrition information on the labels is based on 8-ounce servings. But the cans are allegedly promoted to be, designed to be, and customarily are consumed in one sitting, making the calorie, sugar, and related content information deceptive. So, Hansen’s ad statements include: “experience a can ... to achieve the benefits of 100 mg of EGCG,” “half the caffeine of regular coffee” but “Twice the buzz of a regular energy drink,” and “It’s definitely not soda but you can still down the whole 16-oz can.”
This was mostly a matter for the FDA, which has promulgated regulations on proper serving size. However, to the extent that Hansen misled consumers into thinking its products are twice as effective as competing products when they were really just twice as large, this claim was not precluded.
Energizing effect: Hansen made statements such as: “It’s a wicked mega hit that delivers twice the buzz of a regular energy drink,” “Lo-Carb Monster Energy still delivers twice the buzz of a regular energy drink, but only has a fraction of the calories,” “Java Monster ... half the caffeine of regular coffee. Twice the ‘Buzz,’” “works, tastes, and mixes as good as the original, but with only 10 calories” and provides “the energy you need to party all night with just 10 calories.” Living Essentials alleged that these statements were false or misleading based on the products’ ingredients and generally accepted principles of biochemistry, pharmacology, and physiology. The truth or falsity of these statements didn’t require interpretation or enforcement of the FDCA or its regulations.
Dietary supplements: Living Essentials argued that Hansen was misbranding by labeling its beverages as dietary/energy supplements but promoting them as conventional foods and alcohol mixers in violation of the FDCA and the Sherman Law. This was a straightforward misbranding best resolved by the FDA.
Hansen also argued that the state-law causes of action were preempted by the FDCA. Basically, for these purposes, the law preempts any state food & drug regulation laws that aren’t identical to federal law and saves those that are. The unfair competition claim under California law was predicated on the violation of another law, the Sherman Law. Without getting into the gory details, the court determined that the requirements of the California Sherman Law were identical to the federal law and thus the state-law claims weren’t preempted, even though there’s no private remedy for FDCA violations in themselves. Result: there is a private cause of action for conduct that also violates the FDCA, adding potential enforcers beyond the FDA; Congress may not have wanted direct private enforcement of the FDCA, but there’s insufficient reason to think it wanted to control how states could provide for enforcement of their own identical food & drug laws. See In re Farm Raised Salmon Cases, 72 Cal.Rptr.3d 112 (2008) (addressing the same situation).
Hansen then challenged Living Essentials’ standing under the Lanham Act, which in the 9th Circuit requires a commercial injury that is competitive. Allegations of competitive injury are sufficient when they allege that false or misleading statements tend to divert business from plaintiff to defendant. It’s undisputed that the parties are direct competitors in the energy product business; Living Essentials sufficiently pled a tendency to divert sales.
What about standing under California law? Here the requirement was injury in fact and lost money or property. The court found that Living Essentials sufficiently pled lost money or property caused by Hansen’s allegedly false or misleading ads and labeling.
Then Hansen argued that the counterclaim failed to meet Rule 9(b)’s requirement to plead fraud with particularity. Here, however, the counterclaim didn’t sound in fraud because Living Essentials didn’t specifically allege fraud, fraud wasn’t essential to the counterclaim, and Living Essentials didn’t rely entirely on a unified course of fraudulent conduct (founded on intent to mislead) as the basis of the claim.
The only allegations that could be construed as fraud-based were those that Hansen “knew or should have known” that its representations about energizing effect were false. The court found that these allegations were adequately pled: Living Essentials provided the specific content of the statements and identified the products on which they could be found. The allegations that the statements were false based on the products’ ingredients and “generally accepted principles of biochemistry, pharmacology and physiology” were specific enough to provide the required notice.
Puffery: Hansen argued that its statements were nonactionable, subjective and nonquantifiable puffery, particularly statements about providing “twice the buzz” and the drinks’ capacity to help a user “party all night.” The court disagreed. At this point in the proceedings, it was a factual question whether “buzz” can be quantified or whether it is merely subjective.
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