State ex rel. Stein v. Bowen

Citation2022 NCBC 64
Decision Date27 October 2022
Docket Number21 CVS 3727
PartiesSTATE OF NORTH CAROLINA, ex rel. JOSHUA H. STEIN, Attorney General, Plaintiff, v. ADAM BOWEN; HOYOUNG HUH; JAMES MONSEES; NICHOLAS PRITZKER; and RIAZ VALANI, Defendants.
CourtSuperior Courts of Law and Equity of North Carolina

1. In 2019, the State of North Carolina sued JUUL Labs, Inc. and accused the company of targeting children through the design marketing, and sale of its e-cigarettes. That case resulted in a settlement and consent judgment in which JUUL agreed to modify its marketing practices.

2. This case is the sequel. The State has sued five of JUUL's officers and directors-Defendants Adam Bowen, James Monsees Hoyoung Huh, Nicholas Pritzker, and Riaz Valani-for allegedly directing, approving, and failing to stop the company's illegal activities. All five Defendants have moved to dismiss the complaint, contending that the Court lacks personal jurisdiction and that the State has failed to state a claim for relief. (See ECF Nos. 23, 25, 27.) For the following reasons, the Court concludes that it lacks personal jurisdiction, GRANTS the motions to dismiss on that basis and DENIES all other relief as moot.

North Carolina Department of Justice, by Swain W. Wood, Brian D Rabinovitz, Jessica Vance Sutton, Sripriya Narasimhan, and Kevin Anderson, for Plaintiff State of North Carolina, ex rel. Joshua H. Stein, Attorney General.

Ellis & Winters LLP, by Dixie T. Wells and Scottie Forbes Lee, and Boersch & Illovsky, LLP, by Eugene Illovsky and Kevin Calia, for Defendant Adam Bowen.

Ellis & Winters LLP, by Dixie T. Wells and Scottie Forbes Lee, and Orrick, Herrington & Sutcliffe, LLP, by James N. Kramer, Lauren Seaton, Kevin M. Askew, and Sunny Hwang, for Defendant James Monsees.

Ellis & Winters LLP, by Dixie T. Wells and Scottie Forbes Lee, and Kellogg, Hansen, Todd, Figel & Frederick, PLLC, by Michael J. Guzman, Mark Hansen, David L. Schwarz, and Derek Reinbold, for Defendants Hoyoung Huh, Nicholas Pritzker, and Riaz Valani.

ORDER AND OPINION ON MOTIONS TO DISMISS
Adam M. Conrad Special Superior Court Judge
I. BACKGROUND

3. The following background describes the allegations of the complaint, the nature of the State's claims, and the case's procedural posture. It is presented for context and does not contain any findings of fact.

4. An electronic cigarette, or e-cigarette, is just what its name suggests: a handheld, battery-operated device akin to a cigarette. The device works by heating and vaporizing a nicotine-infused liquid solution. A user inhales the vapor-this is known as vaping-through a mouthpiece so that nicotine passes into the lungs and then into the bloodstream. (See Compl. ¶¶ 26-29.)

5. Vaping, like smoking, has provoked intense public-policy debates. Underage vaping may be at the top of the list. Data cited in the complaint suggest that vaping by high-school and middle-school students is rampant. In the State's words, there is "a youth e-cigarette epidemic in North Carolina." (See Compl. 1, ¶¶ 23, 55, 83.)

6. Who is responsible for this epidemic? The State pins the blame on JUUL and five of its current and former officials. JUUL makes and sells e-cigarettes across the country. Though not based in North Carolina, it has some 3,000 authorized retailers here. Bowen, Monsees, Huh, Pritzker, and Valani have all served on JUUL's board of directors. Bowen was also Chief Technology Officer, and Monsees was Chief Executive Officer and Chief Product Officer. These men, the State alleges, directed JUUL's efforts to create and market e-cigarettes designed to attract young people. (See, e.g., Compl. ¶¶ 9, 40-43, 54.)

7. According to the State, the design of JUUL's e-cigarettes is enticing to children. They look and taste nothing like traditional cigarettes. Some versions of the device look like flash drives or similar gadgets; others light up and mimic a popular video game. Tar and tobacco are out, replaced by more palatable, dessert-like flavors. And additives boost the users' nicotine buzz while easing any throat discomfort they might feel after inhaling. The State alleges that these design features-developed by Bowen and Monsees-make vaping fun, highly addictive, easy to hide, and more appealing to first-time users, especially youth. (See Compl. ¶¶ 59-61, 66, 68, 69, 71-77, 79-81.)

8. The State also takes issue with JUUL's marketing. It alleges that JUUL targeted underage users through its "Vaporized" ad campaign, which coincided with the launch of its first product in 2015. The campaign featured bright images, vivid colors, and youthful models-all allegedly reviewed and approved by JUUL's board of directors-using e-cigarettes in various social settings. JUUL's aim was to portray vaping as cool and alluring, much the same way that tobacco companies portrayed smoking in the twentieth century. (See Compl. ¶¶ 87, 90, 91, 93-97.)

9. Unlike those tobacco companies, though, JUUL had access to modern methods of viral messaging. Its ads appeared not only in traditional media (such as Vice magazine and billboards in Times Square) but also on social-media outlets favored by children (such as Instagram). One aspect of the "Vaporized" campaign was to "engage New York and Los Angeles up-and-comers to use and promote the JUUL brand in a series of web-based and event interactions in 2015." JUUL hosted parties for social-media influencers and enlisted them to share pictures and endorsements with followers, many of whom were underage youth. To stoke public interest even more, JUUL began "seeding" free products and swag to influencers and celebrities. When Vanity Fair photographed singer Katy Perry using a "seeded" device, JUUL reposted the celeb's picture on its own Facebook page and Twitter feed. (See Compl. ¶¶ 91, 94, 95, 99, 103, 111, 112, 120, 122.)

10. These advertising methods allegedly struck a chord with teens, who began creating their own JUUL-related, social-media content. Tech-savvy teens posted pictures and videos of themselves vaping and used JUUL-themed hashtags-#JUUL, #JUULLife, #JUULNation, etc.-to share the images with peers. Some individuals within JUUL acknowledged and worried that the company's popularity with youth was tied to its social-media presence. A social-media study commissioned by JUUL in 2018 validated those worries, reporting that "Juul Owns Teens." Even so, JUUL's board of directors allegedly dismissed-or, worse, embraced-the potential that its marketing appealed to teens. (See Compl. ¶¶ 54, 104-08, 112, 114-18, 142.)

11. JUUL also did little to stop teens from buying e-cigarettes. Its website lacked effective safeguards at the point of sale. Many teens easily bypassed the simple measures used to verify age and identity. Those who failed the verification screening, despite being underage, were placed on JUUL's e-mail list to receive future marketing. In addition, JUUL chose not to require an adult's signature upon delivery. (See, e.g., Compl. ¶¶ 193-98, 200, 201, 207, 208, 216.)

12. Blowback from regulators led JUUL to revamp its advertising between 2016 and 2018. The State says these efforts were too little, too late. JUUL's first makeover-the "Smoking Evolved" campaign-kept the look of the "Vaporized" ads and used the same social-media outlets. Its second-the "Make the Switch" campaign-went further and ditched young models in favor of older men and women. But by then, the State alleges, JUUL's youth-friendly brand was entrenched on social media. (See Compl. ¶¶ 131-34, 138, 147-49.)

13. In addition to targeting youth, JUUL allegedly deceived the public about vaping's potential harms. Its earliest ads did not say that e-cigarettes contain nicotine. More recent ads disclosed the nicotine content as a percentage and equated the amount of nicotine in one e-cigarette pod to the amount in one pack of cigarettes. The State alleges that describing the nicotine content in that fashion was misleading and masked the true potency and addictive nature of e-cigarettes. The State also alleges that JUUL advertised vaping as a way to quit smoking without the FDA's approval to do so. (See Compl. ¶¶ 161, 165, 169, 170, 173, 174, 177-81, 184-86.)

14. JUUL enjoyed immediate financial success. In late 2018, a major cigarette manufacturer acquired a 35% stake in JUUL in exchange for roughly $13 billion. JUUL paid out nearly all of this money to its employees and investors. Bowen, Monsees, Huh, Pritzker, and Valani received cash distributions ranging from about $500 million to about $2.5 billion. (See Compl. ¶¶ 226-28, 231, 233-37.)

15. In 2019, the State sued JUUL based on its allegedly deceptive and youth-oriented marketing. Two years later, the State and JUUL settled their dispute through a consent judgment, which required JUUL to make a cash payment and to modify its marketing practices. Although the State released its claims against JUUL, it did not release potential claims against the five Defendants in this case. (See generally Defs.' Jt. Exs. A, B, ECF Nos. 22.1, 22.2.)

16. A few months after entry of the consent judgment, the State brought this suit. It claims that "in the course of supervising and directing the marketing of JUUL's e-cigarette devices and flavored nicotine inserts," Bowen, Monsees, Huh, Pritzker, and Valani "engaged in unfair or deceptive trade practices" under N.C. G.S. § 75-1.1. The alleged unfair or deceptive acts include marketing to underage consumers, deceiving consumers about the nicotine potency of JUUL's products, and falsely claiming that JUUL's products are approved by the FDA as smoking-cessation devices. (See Compl. 95-96.)

17. Three motions to dismiss are pending: one by Bowen, another by Monsees, and a third jointly by Huh, Pritzker, and Valani. (See ECF Nos. 23, 25, 27.) Each Defendant contests personal jurisdiction and...

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