Colgate v. JUUL Labs, Inc., Case No. 18-cv-02499-WHO

• Decision Date: 23 August 2019
• Docket Number: Case No. 18-cv-02499-WHO
• Citation: 402 F.Supp.3d 728
• Parties: Bradley COLGATE, et al., Plaintiffs, v. JUUL LABS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

402 F.Supp.3d 728

Bradley COLGATE, et al., Plaintiffs,

v.JUUL LABS, INC., et al., Defendants.

Case No. 18-cv-02499-WHO

United States District Court, N.D. California.

Signed August 23, 2019

Todd Michael Kennedy, Gutride Safier LLP, San Francisco, CA, Esfand Nafisi, Jason Samual Rathod, Pro Hac Vice, Nicholas A. Migliaccio, Migliaccio & Rathod LLP, Washington, DC, Neil Kailash Makhija, Pro Hac Vice, Russell D. Paul, Pro Hac Vice, Sherrie R. Savett, Pro Hac Vice, Berger and Montague PC, Philadelphia, PA, Thomas A. Zimmerman, Jr., Pro Hac Vice, Zimmerman Law Offices, P.C., Chicago, IL, for Plaintiffs.

Austin Van Schwing, Charles Joseph Stevens, George Charles Nierlich, III, Joshua D. Dick, Kelsey John Helland, Peter C. Squeri, Winston Y. Chan, Gibson, Dunn & Crutcher LLP, San Francisco, CA, Jessica Reed Culpepper, Gibson, Dunn and Crutcher LLP, Los Angeles, CA, for Defendants.

Adam Gutride, Marie Ann McCrary, Matthew Thomas McCrary, Pro Hac Vice, Seth Adam Safier, Anthony J. Patek, Gutride Safier LLP, San Francisco, CA.

ORDER GRANTING MOTION TO DISMISS IN PART AND DENYING IN PART; DENYING MOTION TO COMPEL; DISCOVERY LETTER; MOTION TO SEAL

Re: Dkt. No. 98, 99, 115, 116

William H. Orrick, United States District JudgeDefendantJUUL Labs, Inc.("JUUL") produces an electronic nicotine delivery system ("ENDS") consisting of an electronic cigarette and a nicotine cartridge called a JUULpod ("pod").Consolidated Class Action Complaint ("CAC")[Dkt. No. 82].According to plaintiffs, forty-four individuals from twenty-two different states, JUUL has used research from the tobacco industry to target youth and design a product that delivers more nicotine and is more addictive than combustible cigarettes.Plaintiffs seek to represent a nationwide class and numerous subclasses in claims for false advertising, fraud, unjust enrichment, several forms of product liability, several types of negligence, violation of Magnuson-Moss Warranty Act, breach of express and implied warranty, and violation of the unfair and unlawful prongs of various state consumer protection statutes.

JUUL moves to dismiss the CAC and to compel certain plaintiffs to arbitrate their claims.DefendantJUUL Labs, Inc.'s Motion to Dismiss Plaintiffs' Consolidated Amended Complaint("MTD")[Dkt. No. 99]; DefendantJUUL Labs, Inc.'s Notice of Motion and Motion [to] Compel Arbitration ("MTC")[Dkt. No. 98].For the reasons stated below, JUUL's motion to dismiss is granted in part and denied in part.Its motion to compel arbitration is denied because plaintiffs did not have inquiry or actual notice of the arbitration provision.

BACKGROUND

I.PROCEDURAL BACKGROUND

On October 30, 2018, I partially granted JUUL's motion to dismiss and denied its motion to strike as premature.Order Partially Granting Motion to Dismiss and Denying Motion to Strike("Order")[Dkt. No. 66].I found that some but not all of the plaintiffs' claims were preempted by the Federal Food, Drug, and Cosmetic Act ("FDCA")as amended by the Tobacco Control Act, 21 U.S.C. § 387 et seq.("TCA"), which provides the Food and Drug Administration ("FDA") with exclusive authority to promulgate regulations on ENDS labeling.Id. at 7-11.Specifically, I held that only claims based on the allegation that the JUUL's labelling fails to warn consumers that its nicotine formulation is more addictive than other methods of nicotine ingestion were expressly preempted, and dismissed those claims with prejudice.Id. at 10-11.But claims based on the mislabeling of the percentage of nicotine per pod were not preempted because the plaintiffs had sufficiently alleged that plaintiffBradley Colgate relied on JUUL's representation that the pods contained a formulation of 5% nicotine when the pods were alleged to contain a formulation of 6.2% nicotine.Id.In addition, a clause in the TCA expressly excepts advertisements from preemption, so claims based on JUUL's advertisements failure to warn consumers about the potency and addictiveness of JUUL's benzoic acid and nicotine salt formulation or the amount of nicotine could be repleaded.Id.

I also dismissed claims based on JUUL's advertising for failure to meet Rule 9(b)'s pleading requirements, claims based on unidentified state consumer protection laws, and the breach of express warranty claim.Id. at 11-14, 18.Plaintiffs sufficiently stated claims based on identified state consumer protection statutes, unjust enrichment, design defect, manufacturing defect, breach of implied warranty of merchantability, and negligent misrepresentation.Id. at 13-19.

On January 30, 2019, the plaintiffs filed the CAC.¹Its allegations span 118 pages.They also include an 88 page appendix of individual plaintiff's allegations.Individual Plaintiff Allegations ("IPA") attached to CAC as Appendix A [Dkt.No. 88-2].

II.FACTUAL BACKGROUND²

JUUL's ENDS consist of an e-cigarette and a pod.JUUL's e-cigarette is about the size and shape of a pack of chewing gum.CAC at ¶ 22.Each pod is a plastic enclosure containing 0.7 milliliters of JUUL's patented nicotine liquid and a coil heater.Id.The pods are sold in four-packs in a variety of flavors, including mango, cool cucumber, fruit medley, cool mint, and crème brulee.Id.at ¶ 25.When a sensor in the e-cigarette detects the movement of air caused by suction on the pod, the battery in the e-cigarette activates the heating element and converts the nicotine solution into a vapor consisting principally of nicotine, benzoic acid, glycerin, and propylene glycol.Id.at ¶ 22.A light embedded in the JUUL device serves as a battery level indicator and lights up in a "party mode" display of rainbow of colors when the device is waved around.Id.According to some reports as of March 2018, JUUL represented 54.6% of the e-cigarette traditional retail market.CAC at ¶ 16.

A. JUUL's Use of Tobacco CompanyMarketing Playbooks

The CAC alleges that JUUL has intentionally copied the strategies and methods previously used by tobacco companies to market cigarettes to minors and young people.Id.at ¶ 19.Tobacco companies are no longer allowed to use certain of those marketing methods pursuant to the Family Smoking Prevention and Tobacco Control Act of 2009 and Master Settlement Agreement ("MSA") reached between the tobacco industry, governmental officials, and injured smokers.Id.These strategies include: (i) using outdoor advertising such as billboards; (ii) sponsoring events; (iii) giving free samples; (iv) paying any person to use, display, make reference to or use as a prop any Tobacco Product or Tobacco Product package in any media, which includes any motion picture, television show, theatrical production or other live performance, and any commercial film or video; (v) paying any third party to conduct any activity which the tobacco manufacturer is prohibited from doing; (vi) selling flavored cigarettes; and (vii) selling cigarettes to minors, tobacco-brand sponsorships of sports and entertainment events or other social or cultural events, and free giveaways of sample cigarettes and brand-name non-tobacco promotional items.Id.at ¶¶ 103-105.

The MSA made these strategies, published in tobacco industry documents and board meeting minutes, public.Id.at ¶ 19.JUUL's founder James Monsees has stated: "It became a very intriguing space for us to investigate because we had so much information that you wouldn't normally be able to get in most industries.And we were able to catch up, right, to a huge, huge industry in no time.And then we started building prototypes."Id.Plaintiffs allege that although JUUL markets itself as a device targeted toward people who already smoke cigarettes, it actually employed the tobacco industry's playbook to sell its product to a new audience of non-smokers.Id.at ¶ 17.

B. JUUL's Nicotine Salt Formulation

Nicotine is an addictive substance whose pleasurable effects diminish with use, requiring the user to consume it in increasing amounts to achieve the same effect.Id.at ¶¶ 27-28.Once a user is addicted to nicotine, the user will experience withdrawal if she is unable to consume more or enough nicotine.Id.at ¶ 30.It is a carcinogen and a toxic chemical associated with cardiovascular, reproductive, and immunosuppressive problems.Id.at ¶ 31(citingMishra, A., et al., HARMFUL EFFECTS OF NICOTINE, IndianJ. Med. Paediatr. Oncol., 36(1): 24–31 (Jan.-Mar. 2015), available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4363846/).According to plaintiffs, because vaping introduces foreign substances into the lungs, prolonged use of vaping products is believed to produce chronic obstructive pulmonary disease, like traditional cigarette smoke, and to trigger immune responses associated with inflammatory lung diseases.Id.As adolescents' brains are still developing, they are particularly vulnerable to addiction.Id. at 33-34.Plaintiffs cite the National Institutes of Health for the proposition that the "amount and speed of nicotine delivery ... plays a critical role in the potential for abuse of tobacco products."Id.at ¶ 35.

JUUL's pods use a nicotine salt formula derived from R.J. Reynolds Tobacco Company("RJR") that enhances the amount and speed of nicotine delivery.Id.at ¶¶ 35-37.Pax Labs (the former parent company of JUUL) owns U.S. patent No. 9,215,895("the '895 Patent"), which describes a process for combining benzoic acids with nicotine to produce nicotine salts.Id.This formulation mimics the nicotine salt additive developed and patented by RJR, such as the use of nicotine benzoate to increase nicotine delivery in cigarette smoke.Id.JUUL's formulation is more addictive and dangerous than a normal cigarette because it delivers more nicotine up to four times faster.Id.at ¶¶ 45, 55.

JUUL's formula also makes ENDS easier to use because it causes less throat irritation or "throat hit."Id.at ¶¶ 38-41, 56.Throat hit is part of the body's natural feedback mechanism for inhaling harmful substances.Id.at ¶ 43.Plaintiffs...