Thursday, December 13, 2012

ingredient whose alleged dangers aren't widely known isn't materially deceptive

Arroyo v. Chattem, Inc., 2012 WL 5412295 (N.D. Cal.)

Plaintiff alleged that Chattem’s Dexatrim, a weight loss supplement, contains hexavalent chromium, which is a dangerous chemical, contrary to Dexatrim’s marketing as safe, healthy, and fit for consumption.  The court dismissed the complaint.

Dexatrim’s website claims that the product is effective, in part, because of the mineral chromium, which purportedly promotes "weight loss," "kick [starts] metabolism," and "naturally [breaks] down carbs and fat while helping you maintain a desire to stay active while dieting."  Arroyo alleged that Chattem implied Dexatrim's safety through packaging that states that the product (1) should be consumed; (2) is the "# 1 Pharmacist Recommended Appetite Suppressant"; (3) is "Ephedra Free"; and (4) contains only the listed ingredients. However, Chattem allegedly failed to disclose that Dexatrim’s chromium comes in the form of dangerous hexavalent chromium, instead of the trivalent chromium naturally found in many fruits and vegetables.  Hexavalent chromium has been linked to lung cancer, emphysema, and dermatitis when ingested by humans by, among others, the CDC, OSHA, and California’s EPA.  It’s also on California’s list of "Chemicals Known to the State to Cause Cancer or Reproductive Toxicity."  Hexavalent chromium is, allegedly, not recommended for human consumption in any quantity.

Arroyo alleged that Chattem’s failure to disclose was material, and that she wouldn’t have bought the product had she known that Dexatrim contained dangerous hexavalent chromium.  She brought the usual California claims.

Chattem argued that Arroyo lacked constitutional standing, but the court disagreed. Under California law, the economic loss occasioned by buying something you wouldn’t have bought or paying more than you would have paid had you known the truth is sufficient economic injury and satisfies Article III.

Arroyo still lost.  First, Rule 9(b) applied because all her claims were grounded in accusations of fraudulent conduct, even though her California claims didn’t have all the elements of common-law fraud.  Arroyo alleged that Chattem’s concealment was deliberate and done with the intent to induce sales, causing reasonable reliance by consumers and resulting harm—that’s like common-law fraud.

And the pleadings failed Rule 9(b)’s particularity requirement.  Though the complaint specified the content of the affirmative misrepresentations, the content of the omission, and why the combination was false or misleading, that wasn’t enough.  It still failed to allege with particularity why this was material or how Arroyo relied on the affirmative misrepresentations and omissions.

On materiality, Arroyo alleged that the presence of hexavalent chromium was material because it made Dexatrim unsafe, and because she wouldn’t have bought it if she’d known that it contained any level of hexavalent chromium.  But most of the allegations were of generalized safety misrepresentations, not misrepresentations that the product didn’t contain hexavalent chromium.  These arguably created the inference that the product was safe.  Arroyo didn’t allege that hexavalent chromium at the level present in Dexatrim made safety statements false or misleading. “Many foods and drugs on the market are not one hundred percent safe, and general allegations that a product's safety is less than one hundred percent do not give rise to a lawsuit for fraud. If it did, then every consumer would be able to bring a suit for economic injury anytime the consumer became aware of an additional, unlabeled product risk after his or her purchase.” 

The studies she cited did not show that any amount of hexavalent chromium would impact safety enough to affect a purchasing decision; they evaluated outcomes at various exposure levels.  This was especially awkward because Arroyo disclaimed increased risk of harm as an injury, even though her economic loss stemmed from the alleged risk of injury she incurred. “The rationale underlying financial loss cases, that a purchaser should receive what he paid for, seems diminished where the purchaser claims no injury based on an increased risk of harm while at the same time claiming that an increased risk of harm is the reason why the purchaser did not receive the benefit of his bargain.”

The court didn’t consider Arroyo’s theory that the failure to disclose was material because she wouldn’t have bought the product if there’d been disclosure because she couldn’t show reliance.  She didn’t specify the exact claims on which she relied before purchase.  She also didn’t allege that she knew about the dangers of hexavalent chromium from any source before purchase.  Thus, she couldn’t show that, even if she’d read the label, she relied on the absence of hexavalent chromium.  Further, there’s no regulation requiring disclosure of the presence of hexavalent chromium.

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