In re Juul Labs, Inc., Mktg., Sales Practices, & Prods. Liab. Litig., Case No. 19-md-02913-WHO

• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
• Writing for the Court: William H. Orrick, United States District Judge
• Citation: 497 F.Supp.3d 552
• Parties: IN RE: JUUL LABS, INC., MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION
• Docket Number: Case No. 19-md-02913-WHO
• Decision Date: 23 October 2020

497 F.Supp.3d 552

IN RE: JUUL LABS, INC., MARKETING, SALES PRACTICES, AND PRODUCTS LIABILITY LITIGATION

Case No. 19-md-02913-WHO

United States District Court, N.D. California.

Signed October 23, 2020

497 F.Supp.3d 573

ORDER ON SUBSTANTIVE MOTIONS TO DISMISS

Dkt. Nos.: 626, 627, 628, 629, 632, 645, 647, 649, 738, 740, 748, 750, 751, 752/778, 754, 771, 772, 773/779.

William H. Orrick, United States District Judge

Currently before me is the "first wave" of motions to dismiss in this massive multidistrict litigation, attacking claims asserted in the Amended Consolidated Class Action Complaint ("CAC"), the Amended Master Complaint (Personal Injury) ("PIC"), and in seven of the Government Entity Complaints ("PECs" or "Three Village/TVC"). The main moving defendants are JUUL Labs, Inc. ("JLI"), the Altria group of defendants¹ ("Altria"), and the current and former JLI founders and directors ("Officer and Director Defendants").² These sets of defendants are named in all three sets of operative complaints. Other defendants who are named only in the PIC are the Retailer defendants,³ the Distributor defendants,⁴ and the E-Liquid defendants.⁵ These defendants have either joined or filed their own motions tracking the main moving defendants’ motions, and some have reserved rights to file motions to dismiss in the next round.

The aim of this first round of motions to dismiss is to address potentially cross-cutting issues. The following motions have been filed and argued:

• JLI and the Retailer defendants’ motions to dismiss or stay given the Food and Drug Administration's primary jurisdiction over JLI's products;

• JLI and the Retailer defendants’ motions to dismiss claims as preempted by federal law;

• Defendants’ motions to dismiss the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") claims asserted in the CAC and PECs;

• Defendants’ motions to dismiss the California law claims asserted in the CAC;⁶ and

• Defendants’ motions to dismiss the public entity claims asserted in seven of the PECs.

497 F.Supp.3d 574

In the main, plaintiffs’ claims may proceed. We are at the pleading stage, where plaintiffs’ allegations are taken as true and reasonable inferences from those allegations are drawn in their favor. In large part, plaintiffs’ claims are plausibly supported and state claims upon which relief can be granted. It would not be efficient to stay this case based on primary jurisdiction, given the uncertainty of when and how the FDA might address any related issues, and until it does so, preemption is not appropriate except regarding specific and narrow statements on product labels as I previously determined in Colgate v. JUUL Labs, Inc. , 345 F. Supp. 3d 1178 (N.D. Cal. 2018) and Colgate v. JUUL Labs, Inc. , 402 F. Supp. 3d 728, 745 (N.D. Cal. 2019).

That said, I am granting some defendants’ motions in a few respects, with leave to amend. Allegations concerning the distinctiveness of the RICO enterprise from the general business of JLI, and the role of Veratad in supporting the enterprise, are currently insufficient. More specific allegations are needed for the RICO claims against Altria, and for all of the claims asserted against directors Pritzker, Huh, and Valani. Plaintiffs will have 20 days from the date of this Order to amend any of the claims dismissed.

TABLE OF CONTENTS

BACKGROUND ...575

I. Class Complaint...575

II. Master Personal Injury Complaint...576

III. Government Entity Complaints...577

I. Motions to Stay or Dismiss Based on Primary Jurisdiction...578

A. Legal Standard...579

B. Primary Jurisdiction...580

1. Efficiency of a Stay...580

2. Delay from a Stay...582

3. Other Factors...583

II. Motions to Dismiss Based on Preemption...583

A. Legal Standard...585

1. Preemption...585

2. Statutory Scheme...585

B. Express Preemption...586

1. Product Liability...586

2. Product Design/Standards Claims...587

3. Packaging and Labelling Claims...587

4. Advertising Claims...590

5. Modified-Risk Claims...591

6. Retailer-Specific Preemption...591

C. Implied Preemption...592

III. Motions to Dismiss RICO Claims...594

A. Legal Standards...594

B. RICO Allegations...596

1. CAC...596

2. Public Entity Complaints...597

C. Enterprise...598

D. Conducted Affairs of Enterprise...603

1. Bowen...604

2. Monsees...606

3. Other Director Defendants...607

4. Altria...609

E. Predicate Acts and Pattern of Racketeering...611

1. Scheme to Defraud...612

2. Intent...612

3. Predicate Acts...613

4. Pattern...617

F. Proximate Cause and Injury to Money or Property...618

1. CAC...618

497 F.Supp.3d 575

2. PECs...620

3. Altria...622

G. Conspiracy...623

IV. Motions to Dismiss UCL/California claims...623

A. Common Law Fraud – California Plaintiffs...625

1. Affirmative Misrepresentations and Justifiable Reliance...625

2. Omissions and Justifiable Reliance...627

3. Damages...630

B. Breach of Implied Warranty – California Plaintiffs...631

1. Privity with JLI...631

2. Non-Merchantability and Causation...631

C. UCL/FAL...632

1. Stating a UCL Claim...632

2. Standing...637

3. Relief...638

D. CLRA...641

E. Unjust Enrichment...641

F. Other Claims/Subject Matter Jurisdiction for Putative Subclass Claims...642

G. Personal Jurisdiction over the Other Director Defendants...642

V. Motions to Dismiss Government Bellwether Complaints...643

A. Municipal Cost Recovery Rule...643

B. Public Nuisance...645

1. JLI...645

2. Altria...650

3. Officer and Director Defendants...651

C. Negligence...654

1. JLI...655

2. Altria...662

3. Officer and Director Defendants...662

D. Proximate Causation...663

1. JLI...664

2. Altria...666

E. Statutory Consumer Protection...666

1. New York Consumer Protection Law...666

2. Florida Consumer Protection Law...671

F. Personal Jurisdiction...673

1. Specific Jurisdiction...674

BACKGROUND

I. CLASS COMPLAINT

The Amended Consolidated Class Action Complaint is the operative pleading for the consumer class action allegations in this case. Dkt. No. 679 ("CAC"). In the CAC, the plaintiffs allege hundreds of pages facts regarding JLI's and the Officer and Director Defendants’ intent to create and market a "blockbuster sequel" to combustible cigarettes. Their product, the JUUL e-cigarette device, was a new entry into the existing electronic nicotine delivery systems ("ENDS") market. According to plaintiffs, the product was intentionally designed to avoid the "stigma" surrounding combustible cigarettes and capture not only existing combustible cigarette smokers and smokeless tobacco users who were addicted to nicotine, but also vastly expand the market by capturing and addicting individuals – specifically including youth users – who had not previously used tobacco or ENDS products. JLI and the Officer and Director Defendants allegedly achieved this by creating a highly addictive product that produced high "buzz" levels with lower throat harshness and discomfort than prior tobacco or existing ENDS products. Eventually with the assistance of

497 F.Supp.3d 576

Altria, JLI and the Officer and Director Defendants are alleged to have achieved not only market dominance in the ENDS market but also to have expanded the pipeline of new nicotine addicts through their three-pronged approach: (i) product design to maximize addiction; (ii) mass deception; and (iii) targeting of youth.

Based on these themes, the CAC asserts the following causes of action on behalf of the "nationwide" class as well as the "California Subclass": (1) Violation of the California Unfair Competition Law ( Cal. Bus. & Prof. Code § 17200, et seq. ); (2) Violation of the California Consumer Legal Remedies Act ( Cal. Civ. Code § 1750, et seq. ); (3) Violation of the California False Advertising Law ( Cal. Bus. & Prof. Code § 17500, et seq. ); (4) Common Law Fraud; (5) Breach of the Implied Warranty of Merchantability; and (6) Unjust Enrichment. The CAC also states on behalf of the nationwide class: (7) Violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") ( 18 U.S.C. § 1962(c) ); (8) Conspiracy to Violate RICO ( 18 U.S.C. § 1962(d) ); and (9) Violation of the Magnuson-Moss Warranty Act ( 15 U.S.C. § 2301, et seq. ).

The CAC also alleges specific violations of state law for subclasses of consumers in the other 49 states and the District of Columbia arising under those jurisdictions’ consumer protection statutes, as well as common law claims of fraud, breach of the warranty of merchantability, and unjust enrichment. CAC ¶¶ 224-649.

II. MASTER PERSONAL INJURY COMPLAINT

The Amended Consolidated Master Complaint (Personal Injury) plus the Court-approved Short Form Complaint are the operative pleadings for the personal...