Who's responsible for allegedly false, concealed endorsement deals?

Woodard v. Labrada, 2017 WL 1018307, -- F. Supp. 3d ---, No. 16-00189 (C.D. Cal. Mar. 10, 2017)

I discussed this case before.  Woodard alleged misrepresentations about the effectiveness of weight loss supplements, specifically the Labrada Garcinia Cambogia Dual Action Fat Buster and Labrada Green Coffee Bean Extract Fat Loss Optimizer. 

Naturex makes Svetol, the active ingredient in the Fat Loss Optimizer.  Naturex allegedly dvertised Svetol as the “most studied and proven green bean extract,” and attributed its effectiveness to “100% premium Robusta beans” processed to yield a “high concentration of key chlorogenic acids.” InterHealth makes SuperCitrimax, the active ingredient in the Dual Action Fat Buster, and allegedly claimed “maximum stability, solubility, bioavailability, and efficacy” as well as “60% all natural HCA derived from the Garcinia Cambogia fruit.”

Labrada allegedly advertised the products as “clinically proven” “FAT BUSTERS” with “ZERO BINDERS, ZERO FILLERS, AND ZERO ARTIFICIAL INGREDIENTS.” Plaintiffs alleged that these claims were deceptive because the supplements contained artificial ingredients. For example, SuperCitrimax was allegedly a synthetic form of hydroxycitric acid.  Plaintiffs further alleged that defendants misrepresented the quantity of active ingredients in the products, the origin of the ingredients (“Made in the USA”), and the overall quality of the products. Labrada allegedly cited “peer reviewed, published” scientific studies on the labels to claim that the products “support significant weight loss.” But one such study was later “retracted by the authors after data was found to be falsified.” [So, essentially, the food is lousy and the portions are too small.]

Dr. Oz allegedly fraudulently promoted the Labrada products on his show by misrepresenting his affiliations with the brands he allegedly endorses. (E.g., he said: “I’ve warned everybody that I’m not going to mention specific brands, but I do want to go through exactly what I would look for. You’re going to look on that list of ingredients. There should be ZERO FILLERS. There should be ZERO BINDER, ZERO ARTIFICIAL INGREDIENTS...”)  He allegedly had undisclosed paid spokespersons for InterHealth and Naturex on his show to promote the products; he told his viewers that his guests were doctors or scientists, but they lacked such credentials. Dr. Oz allegedly referred to the retracted study when touting the magic of the Green Coffee Extract as a weight-loss aid to his viewers. He also described it as a “good quality” study during the Senate Hearing on “Protecting Consumers from False and Deceptive Advertising of Weight-Loss Supplement Products.”  Various media defendants allegedly aided Dr. Oz by concealing his endorsement arrangements, in violation of anti-payola rules, helping him to exploit the trust consumers place in “America’s Doctor.”

The court found various claims adequately alleged against some of the defendants, but not Sony.  EMV, a company responsible for “facilitating strategic partnerships between Dr. Oz, like endorsements, collaborations, speaking engagements, and equity deals, etc.” was sufficiently targeted by the pleadings.  Its website stated: “Our goal is for Dr. Oz to forge a direct and authentic connection between you and your demographic,” to create an “alliance” that “will ensure brand integrity, large scale awareness, and continued financial growth.” This allowed a plausible inference that EMV played a direct role in causing Dr. Oz’s affirmative misrepresentations to be disseminated to the consuming public, and that EMV aided and abetted Dr. Oz in concealing the endorsement deals. “It is plausible that any prudent business partner or representative of Dr. Oz that solicits endorsement deals on his behalf would be charged with the knowledge that Dr. Oz’s repeated disavowals of such endorsement deals constitute a breach of duty to those harmed by such representations.” Thus, the complaint plausibly alleged that EMV participated in fraud, either intentionally and directly or negligently and contributorily.  Indeed, the existence of a special duty to consumers, as required for a negligent misrepresentation claim, could plausibly be inferred from EMV’s profiting from Dr. Oz’s endorsement deals.  “[W]ithout individuals justifiably relying on Dr. Oz’s recommendations or representations, EMV would have nothing of value to offer to potential clients.”

Allegations of Sony’s direct participation were lacking, but not allegations as to media defendants ZoCo and Harpo, which “either provided substantial assistance to, aided and abetted, employed, entered a joint venture and/or were involved in a civil conspiracy with Dr. Oz, and either one of the Labrada Defendants or the Supplier Defendants.”  ZoCo produces the Dr. Oz Show and manages its website.  An archived page of the website allegedly displayed the Svetol trademark along with statements made by a spokesperson for Naturex; this was sufficient to allege that ZoCo “promotes and markets the Labrada products (and/or their proprietary active ingredients) across the United States.” An agency relationship could also plausibly be inferred from Dr. Oz’s @ ZoCo business email address at the pleading stage. There was a plausible inference that ZoCo “directly participated in the tortious conduct, had actual knowledge that Dr. Oz was breaching a duty to consumers, and provided substantial assistance to Dr. Oz and his co-defendants in this endeavor.”

The complaint did not, however, sufficiently allege Harpo’s direct liability. Harpo is ZoCo’s parent company; the allegations did make it plausible that Harpo could be vicariously liable for ZoCo and Dr. Oz’s tortious conduct as a principal. Harpo was plausibly in a position to directly control the acts of its agent, Dr. Oz, since Harpo holds and produces copyright, “creates and develops original TV programming,” and “control[s] any broader joint venture/web project with Dr. Oz.”  “As the alleged holder of the intellectual property rights to The Dr. Oz Show, one can reasonably infer that Harpo stands to gain the most from using the show as a subliminal advertising platform for deceptively marketed weight-loss supplements.”

Sony and Harpo agreed “to collaborate on a website and digital extensions” where Sony was to “provide marketing, legal/business affairs, finance, and other back office services.” That wasn’t sufficient to allege Sony’s direct involvement in the web marketing. There was also a distribution agreement stating: “Harpo will control any broader joint venture/web project with Dr. Oz but Harpo acknowledges Sony’s strong interest in partnering on a Dr. Oz branded new media venture and will discuss with Sony in good faith meaningful opportunities to participate.” The complaint didn’t sufficiently allege that Dr. Oz’s fraudulent promotion of the Products fell within the partnership’s business activities, or that Sony and Harpo “had equal rights to direct and govern the conduct of each other” with respect to the promotion or content of The Dr. Oz Show. Likewise, aiding and abetting/conspiracy allegations as to Sony were insufficient, even assuming Sony provided financial or marketing assistance to The Dr. Oz Show.  “[S]ubstantial assistance is insufficient for fraud without actual knowledge.”