In re: Arizona Theranos Incorporated Litigation

Filing 139

ORDER granting in part and denying in part #122 and #123 Defendants' Motions to Dismiss. See PDF document for details. Plaintiffs are given leave to amend their complaint. Should plaintiffs elect to file a second amended complaint, plaintiffs' second amended consolidated class action complaint shall be filed on or before July 13, 2017. Signed by Judge H Russel Holland on 6/13/17.(LSP)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

In re

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Arizona THERANOS, INC., Litigation,
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)
_______________________________________)

No. 2:16-cv-2138-HRH
(Consolidated with
No. 2:16-cv-2373-HRH
No. 2:16-cv-2660-HRH
No. 2:16-cv-2775-HRH
-andNo. 2:16-cv-3599-HRH)

ORDER
Motions to Dismiss
Defendants move to dismiss plaintiffs’ first amended consolidated class action
complaint.1 The motions to dismiss are opposed.2 Oral argument was not requested and is
not deemed necessary.
Background
Plaintiffs are A.R.; B.B.; B.P.; D.L.; L.M.; M.P.; R.C.; R.G.; S.J.; and S.L. A.R. is
alleged to be a resident of California.3 The other plaintiffs are alleged to be residents of

1

Docket Nos. 122 and 123.

2

Docket No. 132.

3

First Amended Consolidated Class Action (“CCA”) Complaint at 5, ¶ 13, Docket No.
(continued...)
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Arizona.4 Defendants are Theranos, Inc. (“Theranos”); Elizabeth Holmes; Ramesh Balwani;
Walgreens Boots Alliance, Inc.; and Walgreen Arizona Drug Company.5
In 2003, Theranos was founded by defendant Holmes.6 Balwani was the President
and Chief Operating Officer of Theranos until he resigned in 2016.7
“Theranos initially focused on development of a hand-held device that would use a
tiny needle to obtain a small drop of blood for analysis.”8 “By 2008, the project had grown
into what is now known as the ‘Edison’ device.”9 “The Edison device ... was supposedly
able to take a few drops of blood from a patient’s finger placed into a nanotainer capsule, and
reliably conduct hundreds of blood tests, all outside a lab.”10 However, the project did not
apparently get that far because the blood drawn from clients such as plaintiffs was actually
tested at Theranos laboratories.

3

(...continued)

107.
4

First Amended CCA Complaint at 5-6, ¶¶ 14-22, Docket No. 107.

5

The Walgreen defendants are collectively referred to as “Walgreens” herein. Any
reference to the “Theranos defendants” means Theranos, Inc., Holmes and Balwani.
6

First Amended CCA Complaint at 8, ¶ 31, Docket No. 107.

7

First Amended CCA Complaint at 7, ¶ 26, Docket No. 107.

8

First Amended CCA Complaint at 9, ¶ 31, Docket No. 107.

9

First Amended CCA Complaint at 9, ¶ 31, Docket No. 107.

10

First Amended CCA Complaint at 9, ¶ 32, Docket No. 107.
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Plaintiffs allege that defendants knew that the Theranos blood tests “were unreliable,
not ready-for-market, and failed to meet even basic industry standards,”11 but that in 2012,
“Theranos entered into a partnership agreement with Walgreens, under which Walgreens
invested $140 million in Theranos ... and agreed to operate clinics, which it called ‘Wellness
Centers,’ at Walgreen Pharmacies in Arizona and California.”12 Through the Wellness
Centers, “Theranos, along with Walgreens, sold blood [tests] to individuals.”13 Plaintiffs
allege that Walgreens entered into this agreement with Theranos even though “Walgreens
was aware of numerous serious red flags about the tests that put it on notice about the
unreliability of the tests[.]”14
Plaintiffs allege that “[d]efendants intentionally concealed vital information from
consumers, their doctors, and the public at large, about the tests’ unreliability and about the
deficient nature of the [Theranos] testing facilities and equipment.”15 Plaintiffs allege that
[d]efendants also made pervasive misrepresentations – including
in their marketing, in the stores where tests were sold, and in a
steady stream of press releases and other media statements –
falsely stating and asserting that Theranos tests met the highest
standards of reliability, were industry-leading in quality, and had

11

First Amended CCA Complaint 1, ¶ 2, Docket No. 107.

12

First Amended CCA Complaint at 13, ¶ 41, Docket No. 107.

13

First Amended CCA Complaint at 6, ¶ 23, Docket No. 107.

14

First Amended CCA Complaint at 13, ¶ 43, Docket No. 107.

15

First Amended CCA Complaint at 1, ¶ 3, Docket No. 107.
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been developed under and validated under, and were compliant
with, federal guidelines.[16]
Plaintiffs allege that “[d]efendants aggressively promoted Theranos tests as being ready-formarket, and encouraged consumers and their doctors to use and rely on them in making
important health and treatment decisions, including, but not limited to, ... such ... matters as
cancer, HIV, diabetes, kidney disease, and heart disease.”17
But, plaintiffs allege that “[i]n reality, [d]efendants knew ... Theranos tests were
dangerously unreliable, had not been validated as advertised, and did not meet federal
guidelines as advertised.”18 Plaintiffs allege that “in a hurry to get the tests to market and
thereby assist [d]efendants in developing their still-in-development products and services,
... [d]efendants prematurely marketed and sold the [blood] tests to consumers who were, in
essence, subject to beta testing and product development research without their knowledge
and consent....”19 Plaintiffs allege that they “were misinformed about the essential purpose
of [the blood tests] and thus they did not provide, and could not have provided, consent for
such procedure[s] and intrusion.”20 Plaintiffs allege that “[o]ffering blood tests to the general
public enabled [d]efendants to collect blood samples from human subjects without sacrificing

16

First Amended CCA Complaint at 1, ¶ 3, Docket No. 107.

17

First Amended CCA Complaint at 1-2, ¶ 4, Docket No. 107.

18

First Amended CCA Complaint at 2, ¶ 5, Docket No. 107.

19

First Amended CCA Complaint at 2, ¶ 5, Docket No. 107.

20

First Amended CCA Complaint at 49, ¶ 147, Docket No. 107.
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the time and money necessary to recruit volunteers for formal clinical trials.”21 Plaintiffs
further allege that this helped defendants “evade regulatory scrutiny....”22
Plaintiffs allege that in 2016, “[a]fter the Center for Medicare and Medicaid Services
cited Theranos’s Newark, California lab for numerous deficiencies,” Theranos voided the test
results “from its proprietary Edison blood testing devices, which consisted of tens of
thousands of test results.”23 Plaintiffs further allege that “[n]umerous additional test results
... have now been voided or belatedly ‘corrected’ by Theranos[.]”24 Plaintiffs allege that
“[a]s a result of revelations regarding problems with Theranos’s technology and laboratory
standards, Theranos test results have lost all credibility within the medical community.”25
Holmes and Balwani have been banned “from owning or operating a blood-testing business
for at least two years” and Theranos’s license to operate a blood lab in California has been
revoked.26 Theranos is now working on developing a “miniLab” which is apparently a
device that could run diagnostic tests on small amounts of blood.27
21

First Amended CCA Complaint at 50, ¶ 149, Docket No. 107.

22

First Amended CCA Complaint at 50, ¶ 149, Docket No. 107.

23

First Amended CCA Complaint at 2, ¶ 6, Docket No. 107.

24

First Amended CCA Complaint at 3, ¶ 6, Docket No. 107.

25

First Amended CCA Complaint at 40, ¶ 120, Docket No. 107.

26

First Amended CCA Complaint at 48, ¶ 145, Docket No. 107.

27

First Amended CCA Complaint at 48, ¶ 145, Docket No. 107; see also, An Open
Letter from Elizabeth Holmes, Exhibit A, Declaration of David Taylor, which is appended
(continued...)
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In their first amended complaint, plaintiffs assert seventeen causes of action and seek
damages and injunctive relief. Pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1),
and 12(b)(6), defendants now move to dismiss all of plaintiffs’ causes of action.
Discussion
“A suit brought by a plaintiff without Article III standing is not a ‘case or controversy,’ and an Article III federal court therefore lacks subject matter jurisdiction over the
suit.” Cetacean Community v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004). “In that event,
the suit should be dismissed under Rule 12(b)(1).” Id.
“‘To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)). “A claim is facially plausible ‘when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’” Id. (quoting Iqbal, 556 U.S. at 678). “The plausibility standard
requires more than the sheer possibility or conceivability that a defendant has acted
unlawfully.” Id. “‘Where a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between possibility and plausibility of
entitlement to relief.’” Id. (quoting Iqbal, 556 U.S. at 678). “[T]he complaint must provide

27

(...continued)
to Theranos Defendants’ Motion to Dismiss, Docket No. 122 (“We will return our undivided
attention to our miniLab platform”).
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‘more than labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do.’” In re Rigel Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869, 875
(9th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “In
evaluating a Rule 12(b)(6) motion, the court accepts the complaint’s well-pleaded factual
allegations as true and draws all reasonable inferences in the light most favorable to the
plaintiff.” Adams v. U.S. Forest Srvc., 671 F.3d 1138, 1142-43 (9th Cir. 2012).
“Rule 9(b) provides that ‘[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.’” United States ex rel. Cafasso
v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1054-55 (9th Cir. 2011) (quoting Fed.
R. Civ. P. 9(b)). “To satisfy Rule 9(b), a pleading must identify ‘the who, what, when,
where, and how of the misconduct charged, as well as what is false or misleading about [the
purportedly fraudulent] statement, and why it is false.’” Id. at 1055 (quoting Ebeid ex rel.
United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010)).
Arizona Consumer Fraud Act and Fraud Claims28 (First and Second Causes of
Action)
“The Arizona Consumer Fraud Act [“CFA”] is a broadly drafted remedial provision
designed to eliminate unlawful practices in merchant-consumer transactions.” State ex rel.
Woods v. Hameroff, 884 P.2d 266, 268 (Ariz. Ct. App. 1994). “Generally stated, claims
under the CFA, like common law fraud claims, can be based on affirmative misrepresenta-

28

The Arizona Consumer Fraud Act claim in the First Cause of Action is only asserted
on behalf of the Arizona plaintiffs.
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tions, concealment, or omission of material facts.” Tavilla v. Cephalon, Inc., 870 F. Supp.
2d 759, 776 (D. Ariz. 2012). An affirmative “misrepresentation causes injury where the
consumer actually relies on” the statement, although the consumer’s reliance does not need
to be justifiable. Cheatham v. ADT Corp., 161 F. Supp. 3d 815, 825-26 (D. Ariz. 2016). An
omission is actionable under the CFA if it “is material and ‘made with intent that a consumer
rely thereon.’” Id. at 830 (quoting State ex rel. Horne v. AutoZone, Inc., 275 P.3d 1278,
1281 (Ariz. 2012)).
Under Arizona law, to prevail on a common law fraud claim, a plaintiff must show
(1) a representation; (2) its falsity; (3) its materiality; (4) the
speaker’s knowledge of its falsity or ignorance of its truth; (5)
his intent that it should be acted upon by and in the manner
reasonably contemplated; (6) the hearer’s ignorance of its
falsity; (7) his reliance on the truth; (8) his right to rely thereon;
and (9) his consequent and proximate injury.
Peery v. Hansen, 585 P.2d 574, 577 (Ariz. Ct. App. 1978). The “representation” may be an
affirmative representation or an omission of fact that the defendant had a duty to disclose.
Tavilla, 870 F. Supp. 2d at 776. Under California law “‘[t]he elements of common law fraud
are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2)
knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable
reliance; and (5) resulting damage.’” Arei II Cases, 157 Cal. Rptr. 3d 368, 382 (Cal. Ct. App.
2013) (quoting Robinson Helicopter Co. v. Dana Corp., 102 P.3d 268, 274 (Cal. 2004)).
Plaintiffs have asserted both fraud by affirmative misrepresentation claims and fraud
by omission claims. Defendants argue that all of plaintiffs’ fraud claims are subject to
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dismissal for failure to comply with the heightened pleading requirements of Rule 9(b).29
“Rule 9(b) demands that the circumstances constituting the alleged fraud ‘be specific enough
to give defendants notice of the particular misconduct ... so that they can defend against the
charge and not just deny that they have done anything wrong.’” Kearns v. Ford Motor Co.,
567 F.3d 1120, 1124 (9th Cir. 2009) (quoting Bly–Magee v. Calif., 236 F.3d 1014, 1019 (9th
Cir. 2001)) “‘Averments of fraud must be accompanied by the who, what, when, where, and
how of the misconduct charged.’” Id. (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d
1097, 1106 (9th Cir. 2003)). However, “‘a plaintiff in a fraud-by-omission suit faces a
slightly more relaxed burden, due to the fraud-by-omission plaintiff’s inherent inability to
specify the time, place, and specific content of an omission in quite as precise a manner.’”
Schellenbach v. GoDaddy.com LLC, No. CV-16-00746-PHX-DGC, 2017 WL 192920, at
*2 (D. Ariz. Jan. 18, 2017) (quoting Tait v. BSH Home Appliances Corp., No. SACV 1000711 DOC, 2011 WL 3941387, at *2 (C.D. Cal. Aug. 31, 2011)).
Defendants argue that plaintiffs’ fraud by affirmative misrepresentation claims have
not been pled with the required particularity because plaintiffs have failed to delineate the

29

In their reply brief, the Theranos defendants point out that Theranos recently entered
into a consent decree with the Arizona Attorney General, which resolved parens patriae
claims under the Arizona Consumer Fraud Act. Under the consent decree, Theranos has
agreed to pay $4.652 million in restitution for the costs of blood tests purchased by Arizona
consumers. The Theranos defendants contend that this consent decree extinguishes
plaintiffs’ Arizona Consumer Fraud claim but because the consent decree did not become
final until after they had filed their motion to dismiss, they state that they will wait to make
such an argument in the event that the court does not dismiss plaintiffs’ First Cause of
Action.
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alleged fraudulent conduct of each defendant. “In the context of a fraud suit involving
multiple defendants, a plaintiff must, at a minimum, ‘identif[y] the role of [each] defendant[]
in the alleged fraudulent scheme.’” Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007)
(quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989)).
“‘Rule 9(b) is not satisfied where the complaint vaguely attributes the alleged fraudulent
statements to “defendants.”’” United States v. Aurora Las Encinas, LLC, Case No. LA
CV10-01031 JAK (RZx), 2011 WL 13137312, at *2 (C.D. Cal. Sept, 8, 2011) (quoting Mills
v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). Defendants argue that
plaintiffs repeatedly refer to alleged misrepresentations made by “defendants” without
attributing those statements to any particular defendant. For example, plaintiffs allege that
1) “[d]efendants’ representations were false and misleading[,]”30 2) “[d]efendants’
representations were pervasive”,31 3) “[d]efendants’ advertisements for Theranos were
rampant,”32 4) “[d]efendants designed their representations and marketing to give [a] false
impression”,33 5)”[d]efendants advertised that Theranos testing was of ‘the highest levels of
accuracy,’”34 and 6) “[d]efendants made material misrepresentations [and] false promises ...

30

First Amended CCA Complaint at 21, ¶ 67, Docket No. 107.

31

First Amended CCA Complaint at 21, ¶ 68, Docket No. 107.

32

First Amended CCA Complaint at 21, ¶ 69, Docket No. 107.

33

First Amended CCA Complaint at 22, ¶ 70, Docket No. 107.

34

First Amended CCA Complaint at 22, ¶ 71, Docket No. 107.
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regarding Theranos testing services[.]”35
There are a few instances in the amended complaint where plaintiffs have alleged that
a certain defendant made an alleged misrepresentation. For example, in the section of their
amended complaint titled “Defendants Falsely Promoted Theranos Testing as Reliable”,
plaintiffs allege that specific statements were on Walgreens’ website, Theranos’s website,
in advertising at the Wellness Centers in Walgreens stores, in Theranos’s marketing
materials, in the Theranos direct testing order form, and in the Theranos guide to direct
testing.36 Plaintiffs have also alleged that on September 8, 2013, “Holmes boasted that
Theranos was able to ‘run any combination of tests, including sets of follow-on tests’ quickly
from a single tiny blood sample”37 and later stated that
“[w]e spent many years redeveloping every test that is recognized by Medicare ... to be able to run it on a tiny sample” ...
“we focused a great deal on these tests and validated and
verified them over the years, building an infrastructure that was
highly automated and standardized such that the quality of data
that we generate could be used in an actionable manner.”[38]
Plaintiffs have also alleged that on March 12, 2014, “Balwani stated that Theranos was ‘able
to provide a majority of the testing from only two or three drops of bloods’ and ... ‘most

35

First Amended CCA Complaint at 79, ¶ 310, Docket No. 107.

36

First Amended CCA Complaint at 23-25, ¶¶ 73-76, Docket No. 107.

37

First Amended CCA Complaint at 10, ¶ 35, Docket No. 107.

38

First Amended CCA Complaint at 11-12, ¶ 38, Docket No. 107.
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likely patients will prefer a simple finger stick, and we are able to do that.’”39 Plaintiffs also
allege that in a joint press release in September 2013, Theranos and Walgreens stated that
Theranos’s labs were “CLIA-certified” and that Theranos’s “‘proprietary laboratory
infrastructure minimizes human error through extensive automation to produce high quality
results.’”40 And, plaintiffs allege that Holmes stated that “Theranos ‘ha[s] data that show you
can get a perfect correlation between a finger stick and a venipuncture for every test that we
run.’”41 These allegations indicate that plaintiffs have attempted to meet Rule 9(b)
requirements in terms of attributing specific misrepresentations to specific defendants, but
plaintiffs’ amended complaint is still replete with allegations that “defendants” (with no
delineation as to which defendant) made the misrepresentation in question. Each defendant
must be in a position to defend its particular conduct and as currently pled, plaintiffs’ fraud
by affirmative misrepresentation claims inadequately delineate the conduct attributed to each
defendant. Thus, plaintiffs’ fraud by affirmative misrepresentation claims are dismissed.
Defendants argue that plaintiffs should not be given leave to amend these claims
because plaintiffs have already amended their complaint once. But, plaintiffs’ amended
consolidated action complaint was filed by stipulation of the parties,42 after defendants filed

39

First Amended CCA Complaint at 12, ¶ 39, Docket No. 107.

40

First Amended CCA Complaint at 25, ¶ 78, Docket No. 107.

41

First Amended CCA Complaint at 27, ¶ 81, Docket No. 107.

42

Docket No. 101.
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their first motions to dismiss and before the court had ruled on those motions. Because the
court has not previously ruled on the sufficiency of plaintiffs’ allegation and because of the
nature of this case, the court will exercise its discretion and grant plaintiffs leave to amend
with respect to their fraud by affirmative misrepresentation claims in the First and Second
Causes of Action.
Because plaintiffs are being given leave to amend, the court addresses the three other
arguments raised by defendants as to plaintiffs’ fraud by affirmative misrepresentation
claims. First, defendants argue that plaintiffs have failed to identify the alleged misrepresentations to which each plaintiff was exposed, when they each allegedly viewed or heard the
misrepresentations, and which misrepresentations each plaintiff considered material to his
or her decision to purchase Theranos testing services. To comply with Rule 9(b), a plaintiff
“must state the time, place, and specific content of the false representations as well as the
identities of the parties to the misrepresentation.” Schreiber Distrib. Co. v. Serv–Well
Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986).
Some plaintiffs allege that they “relied on the representations in [d]efendants’
materials regarding the reliability of [d]efendants’ services[.]”43 One plaintiff alleges that
she “relied on representations in [d]efendants’ materials (including on Theranos and
Walgreens websites, and in press releases) regarding the reliability of [d]efendants’

43

First Amended CCA Complaint at 55, ¶ 162; 63, ¶ 216; Docket No. 107.
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services.”44 Some allege that they “relied on representations in [d]efendants’ materials
(including at the Walgreens store) regarding the reliability of [d]efendants’ services.”45 One
alleges that he “relied on representations in [d]efendants’ materials (including at the
Walgreens store and the information he viewed on the Theranos website) regarding the
reliability of [d]efendants’ services.”46 One alleges that “he relied on representations in
[d]efendants’ materials (including a billboard) regarding the reliability of [d]efendants’
services.”47 And one alleges that “he relied on representations in [d]efendants’ materials
(including on Theranos website and in advertisements) regarding the reliability of
[d]efendants’ services.”48 Defendants argue that these allegations do not satisfy Rule 9(b)
requirements because they do not identify any specific misrepresentation or even when
plaintiffs viewed any of the press releases, billboards, or advertisements.
In general, plaintiffs allege that they saw misrepresentations that were part of
defendants’ advertising campaign. In cases,
where a fraud claim is based upon numerous misrepresentations,
such as an advertising campaign that is alleged to be misleading,
plaintiffs need not allege the specific advertisements the

44

First Amended CCA Complaint at 57, ¶ 175, Docket No. 107.

45

First Amended CCA Complaint at 59, ¶ 188; 61, ¶ 202; 66, ¶ 240; 70, ¶ 269; Docket
No. 107.
46

First Amended CCA Complaint at 65, ¶ 229, Docket No. 107.

47

First Amended CCA Complaint at 69, ¶ 255, Docket No. 107.

48

First Amended CCA Complaint at 73, ¶ 283, Docket No. 107.
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individual plaintiffs relied upon; it is sufficient for the plaintiff
to provide a representative selection of the advertisements or
other statements to indicate the language upon which the
implied misrepresentations are based.
Morgan v. AT & T Wireless Servs., Inc., 99 Cal. Rptr. 768, 790 (Cal. Ct. App. 2009).
Plaintiffs have done this here.49
This is not a case where there were one-on-one communications between a plaintiff
and a defendant. Rather, in this case, the advertising done by Theranos and Walgreens was
addressed to the public at large. In such cases, where the plaintiffs rely upon broadside
advertising, as opposed to personalized representations, some latitude in pleading should be
allowed since one can reasonably infer that the defendants intended that the public at large
would respond to the ads. Plaintiffs are those who, in this case, responded. That said,
assuming that plaintiffs elect to replead their fraud by affirmative misrepresentation claims,
plaintiffs would do well to include some factual allegations as to when each plaintiff viewed
defendants’ advertising.
Defendants next argue that many of the statements in the advertising campaign on
which plaintiffs allegedly relied are non-actionable “puffery.” “[T]he determination of
whether an alleged misrepresentation ‘is a statement of fact’ or is instead ‘mere puffery’ is
a legal question that may be resolved on a Rule 12(b)(6) motion.” Newcal Industries, Inc.
v. Ikon Office Solution, 513 F.3d 1038, 1053 (9th Cir. 2008) (quoting Cook, Perkiss, &

49

See, e.g., First Amended CCA Complaint at 22-23, ¶¶ 71-72; 27-29, ¶¶ 83-84,
Docket No. 107.
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Liehe v. N. Calif. Collection Service, Inc., 911 F.2d 242, 245 (9th Cir. 1990)). “A statement
is considered puffery if the claim is extremely unlikely to induce consumer reliance.” Id.
“[A] statement that is quantifiable, that makes a claim as to the ‘specific or absolute
characteristics of a product,’ may be an actionable statement of fact while a general,
subjective claim about a product is non-actionable puffery.” Id. (quoting Cook, Perkiss, &
Liehem, 911 F.2d at 245). “While product superiority claims that are vague or highly
subjective often amount to nonactionable puffery, ‘misdescriptions of specific or absolute
characteristics of a product are actionable.’” Southland Sod Farms v. Stover Seed Co., 108
F.3d 1134, 1145 (9th Cir. 1997) (quoting Cook, Perkiss & Liehem, 911 F.2d at 246)).
Plaintiffs allege that defendants misrepresented that the “Theranos tests were
reliable”, that “Theranos’s testing facilities were industry leading in quality”, that
“Theranos’s testing services ... were quicker that traditional tests;” and that “Theranos’s
laboratory infrastructure ... produce[d] high quality results[.]”50 Defendants argue that these
types of statements, that a product is “reliable”, “accurate”, “quicker”, and “industry
leading”, are exactly the types of statements that courts have found to be non-actionable
puffery. See, e.g., Shields v. Alere Home Monitoring, Inc., Case No. C15-2580 CRB, 2015
WL 7272672, at *10 (N.D. Cal. Nov. 18, 2015) (holding that representations that a bloodtesting device was “accurate and reliable” and a “convenient alternative to traditional lab
tests” were non-actionable puffery).

50

First Amended CCA Complaint at 79-80, ¶ 310, Docket No. 107.
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Plaintiffs aptly point out that at least some of the alleged affirmative misrepresentations are not puffery. For example, plaintiffs allege that in the Wellness Centers, defendants
“advertised that Theranos’s ‘CLIA-certified laboratory can perform your tests quickly and
accurately using tiny samples.’”51 Plaintiffs also allege that defendants advertised that “‘[a]ll
tests are developed and validated under and to the CLSI, FDA, Centers for Disease Control
and World Health Organization guidelines.’”52 Plaintiffs allege that Theranos’s marketing
materials “stated that ‘[w]e continuously conduct proficiency testing and participate in
multiple proficiency testing programs[.]’”53 Such types of statements are not puffery.
As for defendants’ alleged misrepresentations about Theranos testing being accurate
and reliable, it is at least plausible that these statements may not be puffery. Evidence may
demonstrate that the reliability of a blood test can be measured and quantified. See
Cheatham, 161 F. Supp. 3d at 828 (claims that a wireless security system provided “reliable
security protection” not puffery because “[a]t least in some circumstances, the reliability and
efficacy of a security system are facts that can be measured and quantified”).
Finally, defendants argue that at the very least plaintiffs have failed to comply with
Rule 9(b) as to any alleged misrepresentations about the use of finger sticks to perform
Theranos blood tests. Although plaintiffs include numerous allegations in the amended

51

First Amended CCA Complaint at 24, ¶ 74, Docket No. 107.

52

First Amended CCA Complaint at 24, ¶ 75, Docket No. 107.

53

First Amended CCA Complaint at 24, ¶ 75, Docket No. 107.
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complaint about the Edison device and the Theranos finger-stick technology, only three
plaintiffs allege that these are the representations that they saw. Plaintiff B.B. alleges that
“[w]hen she purchased Theranos tests, one or more vials of blood were drawn from a vein
in [her] arm” and that “”[t]his was different from the less invasive test that she had expected
based on the representations from [d]efendants that she saw.”54 Plaintiffs L.M. and S.L.
make identical allegations.55 But defendants argue that these plaintiffs cannot possibly ever
show that they relied on the finger-stick representations because they would have known
before their blood was drawn that they were not purchasing a finger-stick blood test.
Reliance is an essential element of both a CFA claim and a common law fraud claim.
No plaintiff could plausibly allege that he or she relied on misrepresentations about fingerstick blood tests, given that he or she must have known that the blood test actually being
performed was not a finger-stick blood test. Many of the misrepresentations that are
attributed to a specific defendant, which are set out above, have to do with the finger-stick
technology. If a plaintiff could not have possibly relied on these representations, then a fraud
by affirmative misrepresentation claim based on these representations would not be plausible.
Turning then to plaintiffs’ fraud by omission claims,
to plead the circumstances of omission with specificity, [a]
plaintiff must describe the content of the omission and where the
omitted information should or could have been revealed, as well
as provide representative samples of advertisements, offers, or
54

First Amended CCA Complaint at 57, ¶ 177, Docket No. 107.

55

First Amended CCA Complaint at 63, ¶ 218; 73, ¶ 285; Docket No. 107.
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other representations that [the] plaintiff relied on to make her
purchase and that failed to include the allegedly omitted
information.
Marolda v. Symantec Corp., 672 F. Supp. 2d 992, 1002 (N.D. Cal. 2009). “Reliance can be
proved ... by establishing that had the omitted information been disclosed, [the plaintiff]
would have been aware of it and behaved differently.” Hoffman v. 162 N. Wolfe LLC, 175
Cal. Rptr. 3d 820, 833 (Cal. Ct. App. 2014) (citation omitted).
In the amended complaint, plaintiffs allege a litany of information that was concealed
or omitted from defendants’ advertising and other material.56 They have also provided
representative samples of websites, press releases, statements to the press, direct order forms,
and other marketing materials that could have included the omitted or concealed
information.57 Plaintiffs have alleged that they would not have purchased Theranos blood
tests if they had known that defendants were using their blood samples for research and
product development.58 Because the Rule 9(b) standard is somewhat relaxed for fraud by
omission claims, the court concludes that plaintiffs have pled their fraud by omission claims
with the required particularity.
Battery and Medical Battery Claims (Third and Sixteenth Causes of Action)
Plaintiffs allege that they “submitted to blood draws performed by [d]efendants which
56

First Amended CCA Complaint at 17, ¶ 54, Docket No. 107.

57

First Amended CCA Complaint at 22-29, ¶¶ 71-85, Docket No. 107.

58

First Amended CCA Complaint at 56, ¶ 169; 58, ¶ 182; 60, ¶ 196; 62, ¶ 210; 64, ¶
223; 65, ¶ 234; 68, ¶ 249; 69-70, ¶ 263; 72, ¶ 277; 74, ¶ 290, Docket No. 107.
-19-

involved [d]efendants penetrating their skin and tissue to draw blood[.]”59 Plaintiffs allege
that “[d]efendants induced [them] to submit to blood draws ... through fraud, concealment,
and substantial misrepresentations, and without informing them about the essential purpose
of the procedures.”60 More specifically, plaintiffs allege that
[d]efendants misrepresented and concealed ... the essential
purpose of the blood draws and procedures to which they
submitted.... Defendants led [p]laintiffs ... to believe that
Theranos testing was ready-for-market and that the purpose of
the blood draws and procedures submitted to was to provide
[p]laintiffs ... [with] reliable information that they could and
should rely upon in making health treatment decisions. In fact,
not disclosed by [d]efendants, [d]efendants had prematurely
rushed Theranos testing services to market, the procedures
[p]laintiffs ... submitted to were experimental in nature and
being used by [d]efendants for research and development, and
the essential purpose of the blood draws and procedures ... was
to aid in [d]efendants’ research and product development.[61]
Plaintiffs allege that they believed that they were submitting to blood tests for legitimate
treatment purposes,62 that they did not consent to have their blood drawn for research and
product development purposes,63 and that defendants intended to and did use their blood

59

First Amended CCA Complaint at 85, ¶ 339; 115, ¶ 492, Docket No. 107.

60

First Amended CCA Complaint at 86, ¶ 341; see also, First Amended CCA
Complaint at 115, ¶ 496, Docket No. 107.
61

First Amended CCA Complaint at 86, ¶ 340; Docket No. 107.

62

First Amended CCA Complaint at 54-55, ¶ 161; 56-57, ¶ 174; 58, ¶ 187; 60, ¶ 201;
63, ¶ 215; 65, ¶ 228; 66, ¶ 239; 68, ¶ 254; 70, ¶ 268; 72, ¶ 282, Docket No. 107.
63

First Amended CCA Complaint at 55, ¶ 164; 57, ¶ 177; 59, ¶ 190; 61, ¶ 204; 63, ¶
(continued...)
-20-

samples and test results for product development purposes.64 Thus, plaintiffs allege that any
consent that they gave for the blood draws was not effective.65
Battery and medical battery occur in “situations in which the patient is mistaken about
the nature of the invasion and the mistake is induced by a health care provider’s misrepresentation.” Duncan v. Scottsdale Medical Imaging, Ltd., 70 P.3d 435, 441 (Ariz. 2003). As
Section 892B of the Restatement (Second) of Torts, to which both courts in Arizona and
California look, explains,
[i]f the person consenting to the conduct of another is induced
to consent by a substantial mistake concerning the nature of the
invasion of his interests or the extent of the harm to be expected
from it and the mistake is known to the other or is induced by
the other’s misrepresentation, the consent is not effective for the
unexpected invasion or harm.
But, this rule “is limited to substantial mistakes, known to the actor, concerning the nature
of the invasion or the extent of the harm that is to be expected. If the consent is induced by
mistake concerning other matters, the rule does not apply.”66 In other words, if the mistake
or misrepresentation goes to a “collateral matter”, consent is not vitiated.67 But if a patient

63

(...continued)
218; 65, ¶ 230; 67, ¶ 242; 69, ¶ 257;71, ¶ 273; 73, ¶ 285, Docket No. 107.
64

First Amended CCA Complaint at 50-52, ¶¶ 149-154, Docket No. 107.

65

First Amended CCA Complaint at 86, ¶ 342; 115, ¶ 496, Docket No. 107.

66

Restatement (Second) of Torts § 892B (1979), cmt. to subsection 2.

67

Id.
-21-

is not fully aware of “the particular character of the contact[,]” then any consent given by the
patient is ineffective. Duncan, 70 P.3d at 441.
Plaintiffs argue that they were not aware of the true “character of the contact” because
defendants concealed the true purpose of the blood tests. Plaintiffs argue that defendants
were engaged in research and development, not legitimate blood testing; that this true
purpose was not known to plaintiffs, and that this true purpose was not a collateral matter.
Plaintiffs cannot plausibly allege that they were not aware of the character of the
contact at issue here. Plaintiffs were fully aware that they were consenting to blood draws.
They were fully aware of the nature of the invasion. The blood tests to which plaintiffs
consented were intended to result in, and plaintiffs received, reports of what were to have
been accurate analyses of the blood samples that were drawn. On a Rule 12(b)(6) motion to
dismiss, the court must accept plaintiffs’ allegations that defendants were using plaintiffs’
blood samples and test results for research and development purposes as true. But, any use
by defendants of plaintiffs’ blood samples or test results to evaluate the Edison device or for
other research and development purposes was collateral to the blood testing for which
plaintiffs plainly gave their consent.
Nothing in Rains v. Superior Court, 198 Cal. Rptr. 249 (Cal. Ct. App. 1984), the
primary case relied on plaintiffs, is to the contrary. In Rains, the plaintiffs consented to “the

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use of physical violence ... as a therapeutic[68] treatment....” Id. at 251. In asserting a battery
claim against the defendants, the plaintiffs argued that their consent had been vitiated by
defendants’ “alleged misrepresentation as to the therapeutic purpose[.]” Id. at 252. The
defendants moved to dismiss the plaintiffs’ battery claim. Id. at 251. The court held that
“the therapeutic versus nontherapeutic purpose of touching by a psychiatrist goes to the
‘essential character of the act itself’ and thus vitiates consent obtained by fraud as to that
character.” Id. at 254. The plaintiffs’ battery claims were thus not subject to dismissal. Id.
The court explained that when “a physician intends to perform treatment for a nontherapeutic
purpose when consent was given only for a therapeutic purpose,” the physician has deviated
from the consent that was given and the consent cannot be considered effective. Id. at 255.
Plaintiffs argue that similarly here, the therapeutic versus nontherapeutic purpose of
the blood draws goes to the “essential character of the act itself” and is not a collateral
matter.

Plaintiffs insist that they have plausibly alleged that defendants intentionally

deviated from the consent that was given and thus they have plausibly alleged that their
consent was not effective.
Plaintiffs’ reliance on Rains is misplaced because Rains centered on there being no

68

“[T]he term ‘therapeutic’ is used in [medical battery cases] to distinguish drugs or
treatments which are intended to affect treatment and cure, as distinguished from applications
which do not have that objective. That the intent was misguided or the utilization of the
particular therapy inappropriate does not detract from the characterization of the application
as ‘therapeutic.’” Freedman v. Superior Court, 263 Cal. Rptr. 1, 4 (Cal. Ct. App. 1989).

-23-

therapeutic purpose for the violent therapy to which the Rains plaintiffs had consented. But
here, plaintiffs have alleged that either they or their health care providers ordered the blood
tests and that Theranos actually conducted the blood tests and delivered results to either
plaintiffs or their health care providers. Although these results may not have been accurate,
it is implausible for plaintiffs to contend that there was no therapeutic purpose for their blood
tests, particularly in light of some of the allegations in plaintiffs’ amended complaint.
Plaintiffs allege that Theranos did 90 percent of the blood testing at its Scottsdale lab, which
did not use the Edison device and “only performed analysis on venipuncture tests” and that
Theranos “outsourced certain ‘highly complex’ tests to third-party, university-affiliated
labs[.]”69 These allegations contradict plaintiffs’ contention that there was no therapeutic
purpose for the blood tests to which they consented. It is clear from plaintiffs’ allegations,
which the court accepts as true on a Rule 12(b)(6) motion, that there were dual purposes
attributed to defendants: giving people test results (which plaintiffs in fact got, although
those results may not have been accurate), and research and development (which is a
collateral matter).
In sum, plaintiffs have failed to plead plausible battery and medical battery claims.
Plaintiffs’ contention that they were not aware of the character of the conduct to which they
consented is implausible, even if, as plaintiffs allege, defendants were using plaintiffs’ blood
samples and test results for research and development purposes. It is not plausible that

69

First Amended CCA Complaint at 34, ¶ 100, Docket No. 107.
-24-

plaintiffs were not aware of the nature of the invasion to which they consented. Because
plaintiffs’ battery claims are not plausible, these claims are dismissed. Plaintiffs are not
given leave to amend as to these claims as amendment would be futile because, in light of
the consent that was given, plaintiffs could never state plausible battery and medical battery
claims.
Negligence Claim (Fourth Cause of Action)
Under Arizona law, “[t]o establish a claim for negligence, a plaintiff must prove four
elements: (1) a duty requiring the defendant to conform to a certain standard of care; (2) a
breach by the defendant of that standard; (3) a causal connection between the defendant’s
conduct and the resulting injury; and (4) actual damages.” Gipson v. Kasey, 150 P.3d 228,
230 (Ariz. 2007). Under California law, “[a]ctionable negligence involves a legal duty to use
due care, a breach of such legal duty, and the breach as the proximate or legal cause of the
resulting injury.” United States Liab. Ins. Co. v. Haidinger–Hayes, Inc., 463 P.2d 770, 774
(Cal. 1970).
Plaintiffs allege that defendants had a duty to disclose all material facts regarding
Theranos blood testing, that defendants breached this duty by making material misrepresentations and omissions and by selling unreliable tests, and that they were injured as a result of
relying on these misrepresentations and omissions.70 For the most part, these are allegations
that would support a negligent misrepresentation claim, as opposed to an ordinary negligence

70

First Amended CCA Complaint at 88-91, ¶¶ 353-361, Docket No. 107.
-25-

claim which is what plaintiffs appear to be trying to assert in their Fourth Cause of Action.
Because most of the allegations in plaintiffs’ Fourth Cause of Action concern misrepresentations and omissions, it is difficult to determine the basis for plaintiffs’ ordinary negligence
claim. Plaintiffs’ negligence claim is dismissed for failure to comply with Rule 8, which
“requires that each claim in a pleading be supported by ‘a short and plain statement of the
claim showing that the pleader is entitled to relief....’” Landers v. Quality Commc’ns, Inc.,
771 F.3d 638, 640 (9th Cir. 2014) (quoting Fed. R. Civ. P. 8(a)(2)). Plaintiffs are given leave
to amend their negligence claim but this claim must not based on allegations of misrepresentations and omissions, which are more appropriately addressed in a negligent misrepresentation claim. The court would also note that because plaintiffs’ negligence claim must be
based on something other than misrepresentations and omissions, this claim need not be pled
with the particularity required by Rule 9(b).
Negligent Misrepresentation Claim (Fifth Cause of Action)
Under Arizona law,
[t]he elements of negligent misrepresentation are: (1) the
defendant provided false information in a business transaction;
(2) the defendant intended for the plaintiff to rely on the
incorrect information or knew that it reasonably would rely; (3)
the defendant failed to exercise reasonable care in obtaining or
communicating the information; (4) the plaintiff justifiably
relied on the incorrect information; and (5) resulting damage.
KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 340 P.3d 405, 412 n.7 (Ariz. Ct. App.
2014). The elements are the same under California law. Goonewardene v. ADP, LLC, 209

-26-

Cal. Rptr. 3d 722, 741 (Cal. Ct. App. 2016). Under Arizona law, “[a] claim for negligent
misrepresentation must meet the particularity requirements of Rule 9(b).” Howard v.
JPMorgan Chase Bank, N.A., No. CV12- 0952-PHX-DGC, 2012 WL 6589330, at *2 (D.
Ariz. Dec. 17, 2012); And, “[u]nder California law, negligent misrepresentation is a species
of actual fraud.” Lorenz v. Sauer, 807 F.2d 1509, 1511–12 (9th Cir. 1987).
Plaintiffs allege that defendants misrepresented material facts that defendants knew
were false and misleading, that defendants knew consumers were likely to rely on these facts,
that plaintiffs did rely on this misinformation, and that they were damaged as result.71 These
allegations suffer from the same problem as plaintiffs’ fraud by affirmative misrepresentation
allegations in the First and Second Causes of Action, which are discussed above, namely that
plaintiffs have failed to delineate which defendant made which alleged misrepresentations.
Plaintiffs’ negligent misrepresentation claim is dismissed for failure to plead with the
particularity required by Rule 9(b). Plaintiffs are, however, given leave to amend this claim.
Breach of Contract Claim (Sixth Cause of Action)
Under Arizona law, “‘[t]o bring an action for ... breach of ... contract, the plaintiff has
the burden of proving the existence of the contract, its breach and the resulting damages.’”
Thomas v. Montelucia Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013) (quoting Graham v.
Asbury, 540 P.2d 656, 657 (Ariz. 1975)). Under California law, “the elements of a cause of
action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance

71

First Amended CCA Complaint at 91, ¶¶ 365-371, Docket No. 107.
-27-

or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.” Oasis West Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011).
Plaintiffs allege that “[d]efendants offered to provide reliable, ready-for-market
testing services using proprietary Theranos technology, in exchange for submission to blood
draws ... and payment of financial compensation....”72 Plaintiffs allege that they accepted this
offer by submitting to blood draws and paying money for the Theranos test results.73
Plaintiffs allege that defendants breached their contracts with plaintiffs by failing to deliver
reliable, ready-for-market testing services, by conducting blood tests using traditional
methodologies instead of the promised minimally invasive methodology, by using equipment
that did not meet quality standards, by not tendering services with reasonable care and
workmanlike effort, and by failing to timely notify them that their tests results were not
accurate.74
Defendants argue that plaintiffs have not alleged that there was an enforceable
contract between plaintiffs and Walgreens and/or Theranos. While plaintiffs have generally
alleged that there was “an offer, an acceptance, [and] consideration,” for there to be an
enforceable contract, there must also be “sufficient specification of terms so that the
obligations involved can be ascertained.” Rogus v. Lords, 804 P.2d 133, 135 (Ariz. Ct. App.

72

First Amended CCA Complaint at 92, ¶ 375, Docket No. 107.

73

First Amended CCA Complaint at 93, ¶ 381, Docket No. 107

74

First Amended CCA Complaint at 93-94, ¶ 382, Docket No. 107.
-28-

1991). Plaintiffs allege that the terms of their contracts “were set forth, in among other
places, the Theranos direct testing order forms ..., the Theranos guide to direct testing ..., and
in marketing materials and other statements by [d]efendants regarding Theranos’s testing
services....”75 Defendants argue that none of these sources provide the basis for an
enforceable contract.
As for the “direct testing order forms”, although plaintiffs allege that “the consumer
needed to complete a one-page ‘Theranos direct testing order form[,]”76 no plaintiff alleges
that he or she actually completed such a form. Moreover, several of plaintiffs would not
have needed to complete the direct testing order form because they allege that they received
their testing pursuant to a healthcare provider’s order.77 The direct testing form provides that
it is “[f]or use only by guests in Arizona who are ordering tests without a physician’s
orders.”78 Similarly, the guide to direct testing would have only been given to persons who
were ordering a test “without a lab order.”79 It is not plausible that the direct testing materials
provided the terms of the alleged contracts.

75

First Amended CCA Complaint at 92, ¶ 376, Docket No. 107.

76

First Amended CCA Complaint at 24, ¶ 76, Docket No. 107.

77

First Amended CCA Complaint at 55, ¶ 162; 57, ¶ 175; 59, ¶ 188; 61, ¶ 202; 63,
¶ 216; 66, ¶ 240; Docket No. 107.
78

theranos direct testing order form at 1, Exhibit 11, First Amended CCA Complaint,
Docket No. 107.
79

a guide to direct testing at 1, Exhibit 12, First Amended CCA Complaint, Docket
No. 107.
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As for the “marketing materials”, it may be plausible that the promises that defendants
made in their advertising could be considered terms of the parties’ contracts. See Tasion
Commc’ns, Inc. v. Ubiquiti Networks, Inc., No. C-13-1803 EMC, 2013 WL 4530470, at *11
(N.D. Cal. Aug. 26, 2013) (finding that alleged misrepresentations contained in advertisements that were seen by the plaintiffs “became a part of the sales contract”). It may also be
plausible that some of the terms of the parties’ contracts can be implied and that an implied
term would include that the services provided by defendants were market-ready testing
services. See Gherna v. Ford Motor Co., 55 Cal. Rptr. 94, 103 (Cal. Ct. App. 1966) (“when
a manufacturer engages in advertising in order to bring his goods and their quality to the
attention of the public and thus to create a consumer demand, the representations made
constitute an express warranty running directly to a buyer who purchases in reliance
thereon”).
Plaintiffs’ amended complaint describes a usual sale-and-purchase of services
arrangement. Plaintiffs went to Walgreens, asked for blood tests that defendants had
promised would be reliable, and were given blood tests for a fee. Plaintiffs allege that the
blood tests they received were not reliable, which is a plausible breach of the sale-andpurchase agreement But, the problem with plaintiffs’ breach of contract claim is that
plaintiffs have failed to adequately allege which defendants were parties to the alleged
contracts. Rather, plaintiffs have generally alleged that “[d]efendants had express and/or

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implied contracts with [p]laintiffs[,]”80 which is insufficient. See Howard, 2012 WL
6589330, at *2 (dismissing breach of contract claim, in part, because the plaintiffs had failed
to identify which defendants were parties to the contract). It is implausible that plaintiffs
contracted with each defendant.
Plaintiffs’ breach of contract claim is dismissed. Plaintiffs are, however, given leave
to amend this claim.
Unjust Enrichment Claim (Seventh Cause of Action)
Under Arizona law, “in order to prevail upon a theory of unjust enrichment, a plaintiff
must establish that, (1) plaintiff conferred a benefit upon the defendant; (2) defendant’s
benefit is at plaintiff’s expense; and (3) it would be unjust to allow defendant to keep the
benefit.” USLife Title Co. of Arizona v. Gutkin, 732 P.2d 579, 584 (Ariz. Ct. App. 1986).
Under California law, “the elements for a claim of unjust enrichment [are] receipt of a
benefit and unjust retention of the benefit at the expense of another.” Elder v. Pacific Bell
Telephone Co., 141 Cal. Rptr. 3d 48, 61 (Cal. Ct. App. 2012) (citation omitted).
Plaintiffs allege that they “lost money as a result of [d]efendants’ conduct alleged
herein”, that Walgreens and Theranos received revenue, that Holmes and Balwani
“personally received at least millions of dollars”, and that “[i]t would be inequitable and
unjust for [d]efendants to retain the money that they have received by their conduct.”81
80

First Amended CCA Complaint at 92, ¶ 377, Docket No. 107.

81

First Amended CCA Complaint at 94-95, ¶¶ 388-391, Docket No. 107. Plaintiffs’
(continued...)
-31-

First, defendants argue that plaintiffs were required to plead their unjust enrichment
claim with particularity because it is grounded in fraud. Defendants argue that the only
conduct plaintiffs can be referring to when they refer to “defendants’ conduct herein” is
defendants’ alleged affirmative misrepresentations about the reliability of the Theranos blood
tests and defendants’ alleged concealment of the true purpose of the tests.
The court concludes that plaintiffs’ unjust enrichment claim must be pled with
particularity. As to the portion of plaintiffs’ unjust enrichment claim which is based on
defendants’ alleged affirmative misrepresentations, plaintiffs have failed to plead this claim
with the required particularity for the same reasons discussed above in connection with
plaintiffs’ fraud by affirmative misrepresentation claims in the First and Second Causes of
Action. The portion of plaintiffs’ unjust enrichment claim which is based on defendants’
alleged affirmative misrepresentations is dismissed. Plaintiffs are, however, given leave to
amend this portion of their unjust enrichment claim.
The portion of plaintiffs’ unjust enrichment claim that is based on defendants’ alleged
concealment of the true purpose of the blood tests has been pled with the required
particularity. But, Holmes and Balwani argue that this claim should still be dismissed as to
them because such a claim against them is implausible. Although plaintiffs’ allegations that
Holmes and Balwani received millions of dollars in compensation is based on “information

81

(...continued)
unjust enrichment claim may be impacted by the consumer fraud settlement between
Theranos and the Arizona Attorney General. See footnote number 29.
-32-

and belief”, “‘[t]he Twombly plausibility standard ... does not prevent a plaintiff from
pleading facts alleged upon information and belief where the facts are peculiarly within the
possession and control of the defendant....” Soo Park v. Thompson, 851 F.3d 910, 928 (9th
Cir. 2017) (quoting Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010)). The
particular facts about Holmes’ and Balwani’s compensation, including how the compensation
they received as executives of Theranos is tied the alleged concealment, would be in
Holmes’ and Balwani’s possession and control. While it is the court’s perception that any
unjust enrichment claim plaintiffs might assert is potentially very weak (especially under
California law), the court cannot conclude, at this time, that such a claim would be
implausible as to Holmes and Balwani.
Aiding and Abetting Fraud Claim against Walgreens (Eighth Cause of Action)
Under Arizona law,
[c]laims of aiding and abetting tortious conduct require proof of
three elements:
“(1) the primary tortfeasor must commit a tort that causes injury
to the plaintiff;
(2) the defendant must know that the primary tortfeasor’s
conduct constitutes a breach of duty; and
(3) the defendant must substantially assist or encourage the
primary tortfeasor in the achievement of the breach.”
Federico v. Maric, 226 P.3d 403, 405 (Ariz. Ct. App. 2010) (quoting Wells Fargo Bank v.
Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d

-33-

12, 23 (Ariz. 2002)). Under California law, “[a] plaintiff may state a claim for aiding and
abetting an intentional tort if (1) the defendant knew that the primary tortfeasor’s conduct
constitutes a breach of duty, and (2) the defendant gave substantial assistance or encouragement to the other to so act.” Hunter v. Citibank, N.A., No. C09-02079-JW, 2010 WL
2509933, at *18 (N.D. Cal. Feb. 3, 2010).
Plaintiffs have alleged that Walgreens aided and abetted fraud.82 More specifically,
they allege that “Theranos, Holmes, and Balwani committed fraud” and that Walgreens’
conduct “enabled, substantially assisted, encouraged, and was a substantial factor in, the
commission of such fraud.”83 Because this claim is grounded in fraud, it must be pled with
the particularity required by Rule 9(b). The portion of plaintiffs’ aiding and abetting claim
which is based on defendants’ alleged affirmative misrepresentations is dismissed because,
as has been discussed above, plaintiffs have failed to satisfy the requirements of Rule 9(b)
as to their fraud by affirmative misrepresentation claims. Plaintiffs are, however, given leave
to amend this portion of their aiding and abetting claim.
As to the portion of plaintiffs’ aiding and aiding claim based on allegations of fraud
by omission, Walgreens argues that such a claim is not plausible because plaintiffs have not
adequately alleged that Walgreens knew that the primary tortfeasors’ conduct constituted a
breach of duty. Walgreens argues that plaintiffs’ allegations actually show that Walgreens

82

First Amended CCA Complaint at 95, Docket No. 107.

83

First Amended CCA Complaint at 95, ¶ 395, Docket No. 107.
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did not know that “Theranos testing was not reliable”84 because Walgreens was not provided
the requisite information to determine if Theranos’s blood testing technology was accurate
and reliable. For example, plaintiffs allege that “a John Hopkins University scientist ...
requested, on Walgreens’ behalf, that Theranos provide his researchers with an Edison device
so that they could verify the technology for Walgreens [but] the device was never
provided.”85 Plaintiffs allege that “[a]s a result, there was no way to compare results from
the prototype Edison device to the results of other commercially-available tests.”86
Walgreens argues that by alleging that it was denied the knowledge and information to
establish the reliability of Theranos’s blood test technology, plaintiffs cannot plausibly allege
that Walgreens had actual knowledge that Theranos was misrepresenting that its tests were
reliable and ready-for-market. Walgreens insists that plaintiffs have to allege that Walgreens
“actually agreed” with Theranos to defraud consumers in order to state a plausible aiding and
abetting claim. Hillis v. Heineman, No. CV-09-73-PHX-DGC, 2009 WL 2222709, at *4 (D.
Ariz. July 23, 2009).
Plaintiffs allege that if “Walgreens lacked any more detailed knowledge, it was by
virtue of Walgreens’ own deliberate choices and conduct in ignoring the problems it
identified, deliberately failing to follow up on the concerns and information it had, and

84

First Amended CCA Complaint at 95, ¶ 396, Docket No. 107.

85

First Amended CCA Complaint at 14, ¶ 45, Docket No. 107.

86

First Amended CCA Complaint at 14, ¶ 45, Docket No. 107.
-35-

ceding to Theranos’s requests to carry on without further information being provided.”87
Knowledge that Walgreens knew the conduct they allegedly aided and abetted was fraudulent
“may be inferred from the circumstances presented. Actual and complete knowledge of the
details of the primary tort may not be necessary in all cases; the knowledge requirement may
be satisfied by showing general awareness of the primary tortfeasor's fraudulent scheme.”
Dawson, 163 P.3d at 1052. Plaintiffs have alleged that Walgreens had a general awareness
of the fraud by the Theranos’ defendants, in large part because Walgreens identified several
red flags that put it on notice that the tests were not market-ready, still in development, and
unreliable. For example, plaintiffs allege that when in the summer of 2011, Walgreens sent
a delegation to Theranos’s Palo Alto headquarters, they were not allowed access to the lab
area or the Edison technology; that Colaborate, LLC, the consulting firm hired by Walgreens,
issued a report in the fall of 2011, that Walgreens needed more information to assess the
proposed partnership between Theranos and Walgreens; and that in 2012, another team from
Walgreens visited Theranos but was not allowed inside the lab.88 These allegations are
sufficient to suggest that it is plausible that Walgreens was aware of more than just
“suspicious activity” but was actually aware of the alleged fraud. Stern v. Charles Schwab
& Co., No. CV-09-1229-PHX-DGC, 2009 WL 3352408, at *7 (D. Ariz. Oct. 16, 2009).

87

First Amended CCA Complaint at 96, ¶ 398, Docket No. 107.

88

First Amended CCA Complaint at 14-16, ¶¶ 46, 47, 49, 50, Docket No. 107.
-36-

Conspiracy and RICO Conspiracy Claims (Ninth and Eleventh Causes of Action)
Under Arizona law, “‘[f]or a civil conspiracy to occur, two or more people must agree
to accomplish an unlawful purpose or to accomplish a lawful object by unlawful means,
causing damages.’” Hearn v. R.J. Reynolds Tobacco Co., 279 F. Supp. 2d 1096, 1117 (D.
Ariz. 2003) (quoting Wells Fargo Bank, 38 P.3d at 36). Under California law, “[t]he
elements of a civil conspiracy are: (1) formation and operation of the conspiracy and (2)
damage resulting to plaintiff (3) from an act done in furtherance of the common design.” ICA Enterprises, Inc. v. Palram Americas, Inc., 185 Cal. Rptr. 3d 24, 36 n.2 (Cal. Ct. App.
2015). A RICO conspiracy claim requires proof of “an agreement involving either a
violation of a substantive provision of RICO or a violation of two predicate offenses” and
“a showing that the defendant was aware of the essential nature and scope of the enterprise
and intended to participate in it.” Tonnemacher v. Sasak, 859 F. Supp. 1273, 1277 (D. Ariz.
1994) (citations omitted).
In their Ninth Cause of Action, plaintiffs allege that defendants agreed to commit
fraud89 and in their Eleventh Cause of Action, plaintiffs allege that defendants agreed to
commit mail and wire fraud.90 Defendants argue that these are nothing more than conclusory
allegations that defendants entered into an agreement to commit fraud.

89

First Amended CCA Complaint at 97-100, ¶¶ 407-413, Docket No. 107.

90

First Amended CCA Complaint at 105-106, ¶ 438, Docket No. 107.
-37-

Plaintiffs first argue that they have alleged that there was an express agreement
between Theranos and Walgreens to commit fraud.91 Plaintiffs cite to paragraph 41 of the
amended complaint in support, in which they allege that “[i]n or around 2012, Theranos
entered into a partnership agreement with Walgreens, under which Walgreens invested $140
million in Theranos, $100 million of which was characterized as an ‘Innovation Fee,’ and
Theranos agreed to operate clinics, which it called ‘Wellness Centers,’ at Walgreens
Pharmacies in Arizona and California.”92 Plaintiffs contend that they have alleged that this
agreement was for an unlawful purpose. For example, plaintiffs allege that “Walgreens and
Theranos jointly marketed Theranos testing services to consumers”, that defendants knew
that consumers would rely on this marketing, and that much of this marketing was false,
which defendants knew and which defendants concealed from consumers.93 Plaintiffs also
specifically allege that “[d]efendants agreed to a partnership through which they would enter
the market for direct-to-consumer testing by advertising, promoting, and selling products and
91

Plaintiffs argue that Holmes and Balwani, in their individual capacities, can be liable
for conspiring with each other, Theranos, and Walgreens because there is “[n]o Arizona
authority ... to support [a] contention that principals and agents cannot, as a matter of law,
be co-conspirators[,]” Morrow v. Boston Mutual Life Ins. Co., Case No. CIV 06-2635-PHXSMM, 2007 WL 3287585, at *9 (D. Ariz. Nov. 5, 2007), and under California law, corporate
directors and officers “may be held liable, as conspirators or otherwise, for violation of their
own duties towards persons injured by the corporate tort.” Doctors’ Co. v. Superior Court,
775 P.2d 508, 513 (Cal. 1989). But plaintiffs do not argue that there was an express
agreement between either or both of the individual defendants and any of the corporate
defendants.
92

First Amended CCA Complaint at 13, ¶ 41, Docket No. 107.

93

First Amended CCA Complaint at 30-31, ¶¶ 87-91; 53, ¶ 156; Docket No. 107.
-38-

services that consumers would use to make decisions about their health, while knowing that
the products and services provided were not as advertised and were unreliable, and that their
promotions and other statements in marketing such products and services were false,
misleading, and/or unproven.”94
In making the foregoing argument, plaintiffs have, in effect, conceded that the express
agreement between Theranos and Walgreens is the Master Services Agreement (“MSA”),
which only defines a lawful commercial relationship between Theranos and Walgreens. It
would be implausible, in light of the MSA, for there to be an express agreement between
Theranos and Walgreens for an unlawful purpose. The portion of plaintiffs’ conspiracy
claims which are based on an express agreement are dismissed. Plaintiffs are not given leave
to amend this portion of their conspiracy claims as amendment would be futile.
Plaintiffs next argue that they have adequately alleged that there was a “tacit”
agreement between defendants to commit fraud. “‘Although an express agreement need not
be shown for a plaintiff to prevail on a civil conspiracy claim, there must be at least a tacit
understanding.’” S. Union Co. v. Southwest Gas Corp., 165 F. Supp. 2d 1010, 1021 (D.
Ariz. 2001) (quoting In re Sunset Bay Associates, 944 F.2d 1503, 1517 (9th Cir. 1991)).
Plaintiffs argue that the allegations of the “‘[c]oordination between’” defendants “‘is strong
circumstantial proof of [a tacit] agreement; as the degree of coordination between
conspirators rises, the likelihood that their actions were driven by an agreement increases.’”

94

First Amended CCA Complaint at 97-98, ¶ 407, Docket No. 107.
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Joshua David Mellberg LLC v. Will, No. CV-14-02025-TUC-CKJ, 2016 WL 944958, at *9
(D. Ariz. Mar. 14, 2016) (quoting United States v. Iriarte-Ortega, 113 F.3d 1022, 1024 (9th
Cir. 1997)).
It is implausible that Walgreens and Theranos would enter into an express agreement
for a legitimate purpose and then defendants would reach a tacit understanding to commit
fraud. The contention that there was a tacit agreement between some or all of the defendants
is implausible in light of the fact that the MSA fully explains the interactions between
Theranos and Walgreens. The portion of plaintiffs’ conspiracy claims which are based on
a tactic agreement between defendants are dismissed. Plaintiffs are not given leave to amend
this portion of their conspiracy claims as amendment would be futile.
RICO Claim (Tenth Cause of Action)
“The elements of a civil RICO claim are simple enough: (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5)
causing injury to the plaintiff’s ‘business or property.’” Grimmett v. Brown, 75 F.3d 506,
510 (9th Cir. 1996) (quoting 18 U.S.C. §§ 1964(c), 1962(c)). “‘Racketeering activity’ is
defined in 18 U.S.C. § 1961(1)(B) as including any act ‘indictable’ under certain enumerated
federal criminal statutes, including 18 U.S.C. § 1341, which makes mail fraud a criminal
offense, and 18 U.S.C. § 1343, which makes wire fraud a crime.” Schreiber Distributing Co.,
806 F.2d at 1399. Rule 9(b) “applies to civil RICO fraud claims.” Edwards v. Marin Park,
Inc., 356 F.3d 1058, 1066 (9th Cir. 2004). “[A]llegations of mail fraud under section

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1962(a)–1962(c) ‘must identify the time, place, and manner of each fraud plus the role of
each defendant in each scheme.’” Schreiber Distributing Co., 806 F.2d at 1401 (quoting
Lewis v. Sporck, 612 F. Supp. 1316, 1325 (N.D. Cal. 1985)). And, “Rule 9(b) requires that
the plaintiff allege a wire fraud claim with particularity, stating the time, place, and specific
content of the false representations as well as the identities of the parties to the misrepresentation.” Sebastian Int’l, Inc. v. Russolillo, 186 F. Supp. 2d 1055, 1066 (C.D. Cal. 2000).
Defendants argue that plaintiffs have failed to satisfy the heightened pleading
requirements of Rule 9(b) as to their RICO claim because plaintiffs have not identified the
allegedly fraudulent statements that were made through the mails or wires or the specific time
and place of such communications. As for their wire fraud allegations, plaintiffs have
identified specific fraudulent statements made on Walgreens’ website and when those
statements were made. Plaintiffs allege that in March 2014, “Walgreens’ website stated that
the Theranos technology supported ‘better, more informed treatment.’”95 Plaintiffs have also
attached to the amended complaint a joint press release, dated September 9, 2013, by
Walgreens and Theranos that plaintiffs contend was on Theranos’s website and which
contained statements such as “Theranos is introducing CLIA-certified laboratory services
with the ability to run its tests on micro-samples” and that “Theranos’ service offers
affordable certified lab testing with quicker response times[.]”96 Thus, plaintiffs have alleged

95

First Amended CCA Complaint at 23-24, ¶ 73, Docket No. 107.

96

Exhibit 5, First Amended CCA Complaint, Docket No. 107.
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two acts of wire fraud with particularity. Plaintiffs’ other allegations as to misrepresentations
made on Theranos’ website do not meet the heightened pleading requirements of Rule 9(b)
because plaintiffs have not alleged when these statements were made.97
As for mail fraud, plaintiffs argue that they have adequately alleged mail fraud
because they have alleged that blood samples were sent through the mail. Plaintiffs cite to
paragraph 99 of the amended complaint in which they allege that “[b]ecause Theranos did
not have FDA approval to conduct tests on the Edison device outside of a laboratory setting
[with one exception], when [d]efendants drew blood at the Wellness Centers, the samples
obtained then had to be couriered to one of two centralized labs, either in Newark, California,
or Scottsdale, Arizona.”98 This allegation not only says nothing about sending the blood
samples in the mail, it does not identify when any particular blood samples were sent nor
does it delineate which defendant was responsible for sending any particular blood sample
through the mail. Plaintiffs have not alleged any act of mail fraud with particularity.
The portion of plaintiffs’ RICO claim which is based on allegations of wire fraud is
not dismissed but plaintiffs would be limited to proving this claim based on the two predicate
acts discussed above. Plaintiffs may elect to amend this claim to include allegations of
additional predicate acts, if plaintiffs can plead those predicate acts with the particularity
required by Rule 9(b). The portion of plaintiffs’ RICO claim that is based on allegations of

97

First Amended CCA Complaint at 22-23, ¶ 72, Docket No. 107.

98

First Amended CCA Complaint at 34, ¶ 99, Docket No. 107 (emphasis added).
-42-

mail fraud is dismissed. Plaintiffs are, however, given leave to amend this portion of their
RICO claim.
California Statutory Consumer Protection Claims (Twelfth through Fifteenth
Causes of Action)
In their Twelfth Cause of Action, plaintiffs assert a claim based on California’s Unfair
Competition Law (“UCL”). In their Thirteenth Cause of Action, plaintiffs assert a claim
based on California’s False Advertising Law (“FAL”). In their Fourteenth Cause of Action,
plaintiffs assert a claim based on California’s Consumer Legal Remedies Act (“CLRA”).
And, in their Fifteenth Cause of Action, plaintiffs assert a California statutory deceit claim.
These claims are asserted on behalf of all plaintiffs.
Defendants argue that the Arizona plaintiffs cannot assert these California state law
claims. Although defendants do not couch their argument in these terms, this is a standing
argument. The issue is whether the Arizona plaintiffs have standing to assert California
statutory claims. “Standing is claim-specific and ‘a plaintiff must demonstrate standing for
each claim he seeks to press.’” Harris v. CVS Pharmacy, Inc., No. ED CV 13-02329-AB
(AGRx), 2015 WL 4694047, at *4 (C.D. Cal. Aug. 6, 2015) (quoting DaimlerChrysler Corp.
v. Cuno, 547 U.S. 332, 352 (2006)). And contrary to plaintiffs’ argument that the court need
not decide this issue now, because standing is a jurisdictional requirement, the court must
take up this matter now.
“To meet [their] burden of proving standing under [California] law, [the Arizona
plaintiffs] must show some plausible basis for invoking that foreign law.” Id. at *4. The
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only possible basis for applying California law to any of the Arizona plaintiffs is that some
of the plaintiffs (B.B., D.L., B.P. and R.G.) allege that “upon information and belief”, some
of their blood tests “were conducted” at the Theranos lab in California.99
“Because [Arizona’s] choice-of-law rules apply in this diversity action, [p]laintiff[s]
may only apply [California] law to [their] alleged injury if [California’s] interest in applying
its consumer protection laws in [Arizona] outweigh [Arizona’s] interest in applying its own
consumer protection laws in [Arizona].” Id. at *5. “Courts consistently examine the
specific claims made in a particular case to determine whether a claim under a consumer
protection statute should be treated as a tort or a contract action for choice of law purposes.”
In re Bridgestone/Firestone, Inc. Tires Prod. Liab. Litig., 155 F. Supp. 2d 1069, 1078-79 n.6
(S.D. Ind. 2001). Here, plaintiffs’ California statutory consumer protection claims are most
analogous to tort claims for fraudulent or negligent misrepresentation, fraud, and common
law unfair competition. “Arizona courts apply the Restatement (Second) of Conflict of Laws
... to determine the controlling law for multistate torts.” Bobbitt v. Milberg LLP, 801 F.3d
1066, 1070 (9th Cir. 2015). “The Restatement instructs courts to look to the state that has
‘the most significant relationship to the occurrence and the parties’ of any tort claim.” Id.
(quoting Restatement (Second) of Conflict of Laws § 145(1)).

99

First Amended CCA Complaint at 57, ¶ 178; 59, ¶ 191; 61, ¶ 205; 69, ¶ 258; Docket
No. 107.
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The “especially relevant contacts” to be considered include:
1. The place where the injury occurred;
2. The place where the conduct causing the injury occurred;
3. The domicile, residence, nationality, place of incorporation
and place of business of the parties;
4. The place where the relationship, if any, between the parties
is centered.
Id. (quoting Bates v. Superior Court, 749 P.2d 1367, 1370 (Ariz. 1988)). Here, the injury to
the Arizona plaintiffs occurred in Arizona because that is where they were allegedly
deceived, that is where they saw the alleged false advertising, and that is where they
purchased the Theranos tests. Arizona is also where most of the conduct causing injury
occurred, and it is where the Arizona plaintiffs reside. While some of the defendants are
alleged to be domiciled in California, the Arizona plaintiffs’ relationship with defendants is
centered in Arizona. The only connection any of the Arizona plaintiffs have with California
is that some of their blood samples may have been sent to California for testing. This is not
a sufficient contact to justify applying California law to the conduct of which the Arizona
plaintiffs complain. The Arizona plaintiffs do not have standing to bring claims under
California’s consumer protection statutes. The Arizona plaintiffs’ California claims in the
Twelfth through Fifteenth Causes of Action are dismissed without leave to amend as
amendment would be futile.

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Defendants next argue that the sole California plaintiff, A.R., also does not have
standing to assert these California statutory claims. “[S]tanding requires that (1) the plaintiff
suffered an injury in fact, i.e., one that is sufficiently ‘concrete and particularized’ and ‘actual
or imminent, not conjectural or hypothetical,’ (2) the injury is ‘fairly traceable’ to the
challenged conduct, and (3) the injury is ‘likely’ to be ‘redressed by a favorable decision.’”
Bates v. United Parcel Service, Inc., 511 F.3d 974, 985 (9th Cir. 2007) (quoting Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560–61 (1992)). “When confronted with a motion to
dismiss for want of standing, the court must accept each material allegation in the complaint
as true and construe the complaint in favor of the complainant.” Urantia Found. v. Maaherra,
895 F. Supp. 1328, 1328 (D. Ariz. 1995).
Defendants argue that A.R. has not alleged that he suffered a concrete and
particularized injury. A.R. alleges that he purchased Theranos blood tests, that he paid
$41.79 for the tests, and that the tests indicated that “his Vitamin D levels were low, his
blood sugar high, and his LDL (cholesterol) level was high[.]”100 A.R. further alleges that
his doctor prescribed medication as a result of the Theranos tests and that “[t]he medication
that A.R.’s doctor prescribed to supplement his Vitamin D levels caused excess absorption
and buildup of calcium in A.R.’s blood, and caused pain and other adverse effects to A.R.”101
A.R. alleges that “[a]pproximately one year before having his blood tested by Theranos, [he]

100

First Amended CCA Complaint at 54-55, ¶¶ 161, 163, 166, Docket No. 107.

101

First Amended CCA Complaint at 55, ¶ 166, Docket No. 107.
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had his blood tested by another company, and the results showed that A.R.’s blood contained
a normal level of Vitamin D.”102 A.R. alleges that “[t]he Theranos tests that [he] purchased
were unreliable and/or inaccurate” and that after so learning, “he revisited his doctor, and had
his blood tested by another company. The results reflected that he is healthier than the
Theranos tests had indicated.”103 A.R. alleges that he suffered anxiety and emotional distress
“as a result of the unreliable Theranos blood tests he purchased....”104
Defendants argue that these allegations, assuming they are true, do not establish that
A.R. was injured as a result of an unreliable and/or inaccurate Theranos blood test.
Defendants argue that A.R.’s allegations do not plausibly establish that he received
inaccurate test results. Defendants point out that A.R. does not allege that Theranos voided
or corrected any of his test results, that his non-Theranos test results were accurate, or how
the non-Theranos test showed that he was “healthier.” Defendants contend that A.R. has not
alleged any facts that would lead to an inference that any of his test results were inaccurate
when they were reported and that in order to have standing, he must allege that the tests he
received were, in fact, inaccurate. Defendants argue that A.R. cannot rely on the fact that
other individuals may have received inaccurate test results because that is not a concrete and
particularized injury. Defendants insist that A.R.’s allegations of injury in fact are based

102

First Amended CCA Complaint at 55, ¶ 166, Docket No. 107.

103

First Amended CCA Complaint at 56, ¶¶ 167-168, Docket No. 107.

104

First Amended CCA Complaint at 56, ¶ 172.
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“entirely on a risk of harm to other consumers”, which is not sufficient for standing purposes.
Shields, 2015 WL 7272672, at *6.
A.R. has adequately alleged an injury in fact. A.R. has alleged that he became aware
of the reports about problems with Theranos blood tests, that he believed that his Theranos
blood tests were unreliable, that he became anxious over the situation, and that he had his
blood retested. This is an adequate statement of both a monetary loss and an allegation of
a physical injury caused by the alleged unreliability of the Theranos blood tests.
But even if A.R. has adequately alleged standing as to the California statutory claims,
which he has, defendants argue that all of these claims should be dismissed for failure to
comply with Rule 9(b). The UCL “prohibits any ‘unlawful, unfair or fraudulent business act
or practice.’” Williams v. Gerber Prod. Co., 552 F.3d 934, 938 (9th Cir. 2008) (quoting Cal.
Bus. and Prof. Code § 17200). “Rule 9(b)’s particularity requirement applies to each of the
three prongs of the UCL (‘unlawful,’ ‘unfair,’ and ‘fraudulent’) where, as here, the claims
are based on a ‘unified course of fraudulent conduct.’” Rosado v. eBay Inc., 53 F. Supp. 3d
1256, 1265 (N.D. Cal. 2014) (quoting Kearns, 567 F.3d at 1126–27). “To meet Rule 9(b)’s
heightened standard, a plaintiff must allege with specificity that purported misrepresentations: (1) were relied on by [the p]laintiff; (2) were material; (3) influenced [the p]laintiff's
decision to purchase [the defendants’] product; and (4) were likely to deceive members of
the public.” Id.

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The FAL “prohibits any ‘unfair, deceptive, untrue, or misleading advertising.’”
Williams, 552 F.3d at 938 (quoting Cal. Bus. and Prof. Code § 17500).
To state a claim under the FAL, a plaintiff must plead facts
showing that he/she has standing by establishing an economic
injury, which was caused by false advertising that is the gravamen of the claim, [and] plead misrepresentation with particularity by identifying actionable advertising likely to deceive and
showing actual reliance on such advertising[.]
Smith v. LG Elecs. U.S.A., Inc., No. C-13-4361 PJH, 2014 L 989742, at *10 (N.D. Cal.
March 11, 2014). “Rule 9(b)’s heightened pleading standards apply to claims for violation
of the ... FAL,” when, as here, those claims “are grounded in fraud.” In re Ferrero Litig., 794
F. Supp. 2d 1107, 1114 (S.D. Cal. 2011).
[T]he CLRA prohibits a person from “[r]epresenting that goods
or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have,”
“[r]epresenting that goods or services are of a particular
standard, quality, or grade ... if they are of another,” [and]
“[a]dvertising goods or services with intent not to sell them as
advertised[.]”
Yastrab v. Apple Inc., 173 F. Supp. 3d 972, 977 (N.D. Cal. 2016) (quoting Cal. Civ. Code
§§ 1770(a)(5), (a)(7), (a)(9), (a)(16)). “‘Three elements are necessary to state a claim under
the CLRA: misrepresentation, reliance, and damages.’” Id. (quoting Yastrab v. Apple Inc.,
No. 5:14–cv–01974–EJD, 2015 WL 1307163, at *4 (N.D. Cal. Mar. 23, 2015)). “Rule 9(b)’s
heightened pleading standards apply to claims for violations of the CLRA....” Kearns, 567
F.3d at 1125.

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“California Civil Code § 1709 provides damages for ‘fraudulent deceit,’ stating that
‘[o]ne who willfully deceives another with intent to induce him to alter his position to his
injury or risk, is liable for any damage which he thereby suffers.’” Diaz v. Fed. Express
Corp., 373 F. Supp. 2d 1034, 1066–67 (C.D. Cal. 2005). In order to prevail on this statutory
claim, a plaintiff must prove all the elements of a common law fraud claim, id., which means
that Rule 9(b)’s heightened pleading requirements apply to a California statutory deceit
claim.
A.R. has failed to plead his California statutory claims with the required particularity.
All A.R. alleges is that “he relied on the representations in [d]efendants’ materials regarding
the reliability of [d]efendants’ services.”105 He does not identify which defendants made the
alleged misrepresentations. Although A.R. may be attempting to rely on defendants’ alleged
omissions in connection with these claims, that is not entirely clear from the amended
complaint in which it is only alleged that “plaintiffs” were deceived by defendants’ omissions
and that “plaintiffs” relied on these omissions.106 Such allegations are not sufficient for Rule
9(b) purposes for claims being asserted by a single plaintiff. A.R.’s California statutory
claims are dismissed. A.R., however, is given leave to amend these claims.
Because A.R.’s UCL claims are being dismissed pursuant to Rule 9(b), the court need
not address defendants’ argument that these claims should be dismissed because A.R. cannot
105

First Amended CCA Complaint at 55, ¶ 162, Docket No. 107.

106

First Amended CCA Complaint at 107, ¶ 446; 110, ¶ 464; 112, ¶ 478; Docket No.

107.
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show that he is entitled to any relief. Were the court to have addressed this argument, it
would have concluded that it was at least plausible that A.R. would be entitled to restitution
because under the UCL, “it is not essential that money be paid directly to the recipient by the
party seeking restitution.” Shersher v. Superior Court, 65 Cal. Rptr. 3d 634, 641 (Cal. Ct.
App. 2007). The UCL only requires that “the plaintiff must once have had an ownership
interest in the money or property acquired by the defendant through unlawful means.” Id.
Human Subjects Act Claim (Seventeenth Cause of Action)107
California’s Protection of Human Subjects in Medical Experimentation Act (“the
Human Subjects Act”) “was based on a legislative finding of a growing need to protect
citizens from unauthorized medical experiments. This legislation, enacted in 1978, was
intended ‘to provide minimum statutory protection for the citizens of this state with regard
to human experimentation and to provide penalties for those who violate such provisions.’”
Daum v. SpineCare Medical Group, Inc., 61 Cal. Rptr. 2d 260, 272 (Cal. Ct. App. 1997)
(quoting § 24171, subd. d). “Section 24175(a)” of the Act “provides in part that ‘no person
shall be subjected to any medical experiment unless the informed consent of such person is
obtained.’” Moorer v. Stemgenex Medical Group, Inc., Case No. 3:16-cv-02816-AJB-NLS,
2017 WL 1281882, at *11 (S.D. Cal. Apr. 6, 2017). “‘Informed consent’ under section
24173 requires ‘a written consent form ... be signed and dated, and the subject ... be informed
both verbally and within the written consent form of certain enumerated facts regarding the

107

This claim is only asserted by A.R.
-51-

proposed medical experiment.’” Id. (quoting Perez v. Nidek Co., Ltd., 657 F. Supp. 2d 1156,
1163 (S.D. Cal. 2009)). “To qualify as a ‘medical experiment,’ the use of a device must be
‘in the practice or research of medicine in a manner not reasonably related to maintaining or
improving the health of the subject or otherwise directly benefitting the subject.’” Id.
(quoting Cal. Health & Safety Code § 24174(a)).
A.R. alleges that “[d]efendants violated the Human Subjects Act by failing to obtain
informed consent prior to conducting medical experiments” on him.108 Defendants argue that
A.R. has failed to state a plausible human experimentation claim because their conduct does
not fall within the narrow scope of the Act. Defendants contend that the Human Subjects Act
“deals with experiments on human subjects in the course of pure research[,]” Trantafello v.
Med. Ctr. of Tarzana, 227 Cal. Rptr. 84, 87 n.2 (Cal. Ct. App. 1986), and that A.R. cannot
plausibly contend that the blood tests offered at Theranos Wellness Centers were “pure
research.”
Plaintiffs argue, however, that there is no requirement that the conduct at issue be
“pure research” in order for conduct to fall within the scope of the Act. Plaintiffs point out
that this language comes from a footnote in Trantafello and that the plaintiff there was not
pursuing a Human Subjects Act claim, but rather a medical malpractice claim. Id. at 85.
Plaintiffs argue that the “pure research” language in Trantafello was clearly dicta and thus
does not control the analysis of whether conduct falls within the scope of the Act.

108

First Amended CCA Complaint at 118, ¶ 512, Docket No. 107.
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But as the only published California state court case on this issue, the court finds this
dicta persuasive and concludes that the Human Subjects Act only applies to experiments
done in the course of pure research. A.R. cannot plausibly allege that the Theranos blood
tests were being conducted for pure research.
Perez v. Nidek Co., 711 F.3d 1109 (9th Cir. 2013), is instructive on this issue. There,
the plaintiffs each had eye surgery with “a Nidek EC–5000 Excimer Laser System (‘the
Laser’) to correct farsightedness. Id. at 1112. “They claim[ed] that, at the time of their
surgeries, they did not know the FDA had not approved the Laser for this use. According
to the Complaint, had they known, they would not have consented to the surgeries.” Id. The
plaintiffs brought a claim under the Human Subjects Act and the parties disagreed as to
“whether the surgeries were performed ‘in the practice ... of medicine in a manner not
reasonably related to maintaining or improving the health of the subject or otherwise directly
benefitting the subject.’” Id. at 1114 (quoting § 24174(a)). The court rejected the plaintiffs’
argument that the eye surgeries in question were not reasonably related to maintaining or
improving their health because they alleged “that the procedures were undertaken ‘to attempt
to correct [] farsightedness.’ [The plaintiffs] admit[] that the surgeries had a therapeutic
purpose” and they did not “claim that this therapeutic purpose was merely incidental to a
broader research goal....” Id. at 1115.
Similarly here, A.R. has alleged that the blood tests he purchased had some
therapeutic purpose. As discussed above in more detail, plaintiffs have alleged that

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defendants had a dual purpose for the blood tests. And, in particular, as to the therapeutic
purpose, A.R. alleges that his doctor prescribed medicine as a result of his Theranos blood
test, which indicates that the blood tests were not being conducted for pure research. The
blood tests were reasonably related to maintaining or improving the health of A.R., even
assuming that the results of his blood tests might have been inaccurate. In short, any
allegation that the Theranos blood tests were being conducted for pure research would be
implausible.
A.R.’s Human Subjects Act claim is dismissed. A.R. is not given leave to amend this
claim as amendment would be futile.
B.B. , M.P., and A.R. Claims
Defendants argue that B.B., M.P., and A.R. lack standing to assert their tort,
conspiracy, and breach of contract claims. “‘[A] plaintiff must demonstrate standing for each
claim he seeks to press....’” Davis v. Fed. Election Com’n, 554 U.S. 724, 734 (2008)
(quoting DaimlerChrysler Corp, 547 U.S. at 352). Defendants argue that these plaintiffs have
not alleged an injury in fact.
A.R.’s allegations as to injury are set out above. Because he has adequately alleged
injury in fact as to his California statutory claims, A.R. has adequately alleged injury in fact
as to his tort, conspiracy, and breach of contract claims.
As for B.B., she alleges that she purchased “eight Theranos blood tests”, that she paid
$81.04 for these tests, that “[t]he Theranos tests [she] purchased were unreliable and/or

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inaccurate[,]” and that “[a]fter learning that her Theranos tests were unreliable and/or
inaccurate, she had her blood retested multiple times by another company.”109 B.B. also
alleges that she “suffered emotional distress, stress, and anxiety as a result of the unreliable
Theranos blood tests she purchased....”110 Similarly, M.P. alleges that he purchased Theranos
blood tests, that he “paid for the Theranos tests out-of-pocket”, that “[t]he tests [he]
purchased were unreliable and/or inaccurate” and that he paid to have his blood retested
“after learning that the Theranos tests were unreliable and/or inaccurate.”111 M.P. also
alleges that he “suffered emotional distress, stress, and anxiety as a result of the unreliable
Theranos blood tests he purchased....”112
For the same reasons the court concluded that A.R. has adequately alleged an injury
in fact, the court finds that B.B. and M.P. have adequately an injury in fact. B.B. and M.P.
have adequately alleged that they suffered an injury in fact because they believed, based upon
publicity, that their blood tests might be inaccurate, they became anxious over the situation,
and they had their blood retested.
Joint Venture or Agency Relationship
Plaintiffs allege that at all relevant times, “Theranos was acting as an agent and co-

109

First Amended CCA Complaint at 56-58, ¶¶ 174, 176, 180, 181, Docket No. 107.

110

First Amended CCA Complaint at 58, ¶ 185, Docket No. 107.

111

First Amended CCA Complaint at 64-65, ¶¶ 228, 231, 232, 233, Docket No. 107.

112

First Amended CCA Complaint at 66, ¶ 237, Docket No. 107.
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venturer of Walgreens” and “that Walgreens was acting as an agent and co-venturer of
Theranos[.]”113 Plaintiffs’ joint venture contention, however, is foreclosed by the MSA,
which provides that “Theranos is an independent contractor, and the relationship of the
parties under this Agreement will not be construed to create any other relationship, as
partners, joint venturers, principal and agent, or otherwise.”114 Any allegation that Walgreens
and Theranos were engaged in a joint venture or had an agency relationship is implausible.
See, e.g., Satellite Fin. Planning Corp. v. First Nat’l Bank of Wilmington, 633 F. Supp. 386,
401 (D. Del. 1986) (finding that the parties’ Operating Agreement did not create a
partnership or joint venture in large part because “the Operating Agreement plainly describes
Satellite Financial as an ‘independent contractor’”). Plaintiffs’ claims against Theranos or
Walgreens which are based on a joint venture or agency theory of liability are dismissed.
Plaintiffs are not given leave to amend these claims as amendment would be futile.
Injunctive Relief
A plaintiff must establish standing for each form of relief he requests.
DaimlerChrysler Corp., 547 U.S. at 352. “To establish standing for prospective injunctive
relief, a plaintiff must demonstrate that ‘[s]he has suffered or is threatened with a concrete
and particularized legal harm coupled with ‘a sufficient likelihood that [s]he will again be
wronged in a similar way.’” Phillips v. Apple Inc., No. 15-CV-04879-LHK, 2016 WL
113

First Amended CCA Complaint at 7, ¶27, Docket No. 107.

114

MSA at 17, § 26(a), Exhibit A, Declaration of David R. Singh [etc.], which is
appended to Walgreens’ Motion to Dismiss, Docket No. 123.
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1579693, at *5 (N.D. Cal. Apr. 19, 2016) (quoting Bates, 511 F.3d at 985). “‘Past exposure
to illegal conduct does not in itself show a present case or controversy regarding injunctive
relief ... if unaccompanied by any continuing, present adverse effects.’” Id. (quoting O’Shea
v. Littleton, 414 U.S. 488, 495–96 (1974)). “[P]laintiffs who were induced into purchasing
a product through deceptive advertising must allege intent to purchase the deceptivelyadvertised product in the future in order to have standing to seek injunctive relief.” Id. at *9.
Plaintiffs seek “[a]n order permanently enjoining [d]efendants’ misconduct....”115
Plaintiffs lack standing to seek such relief. No plaintiff has alleged that he or she intends to
purchase a Theranos blood test in the future. Moreover, defendants contend that “Theranos
no longer conducts blood tests on patients through any of its facilities” and that “Theranos
has no intention of resuming its consumer laboratory testing operations.”116
Plaintiffs’ allegations about the miniLab that Theranos is allegedly now developing
do not save plaintiffs’ request for injunctive relief. Plaintiffs allege, and defendants have
confirmed, that Theranos is developing the miniLab. Although Theranos may not plan to
offer blood testing using this technology directly to consumers, plaintiffs argue that does not
mean that consumers would not be affected by this new product. Plaintiffs seem to be
implying that it is possible that they could unwittingly purchase a Theranos blood test in the
future because it is possible that their blood could be sent to a lab that is using Theranos’s
115

First Amended CCA Complaint at 119, ¶ 2, Docket No. 107.

116

Taylor Declaration at 1-2, ¶¶ 2-3, which is appended to Theranos Defendants’
Motion to Dismiss, Docket No. 122.
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miniLab technology. But the fact that Theranos may still be working on a blood testing
product does not create a sufficient likelihood of future injury. The possibility that a
plaintiff, in the future, could have a blood sample sent to a lab using Theranos technology
is nothing more than speculation. In order to be entitled to injunctive relief, plaintiffs must
allege that they intend to purchase a Theranos blood test in the future. No plaintiff has so
alleged; and any such allegation by any plaintiff would be implausible.
Plaintiffs also contend that they are seeking a second injunction, in the form of an
order directing defendants “to promptly and adequately notify [p]laintiffs ... regarding the
problems with, and unreliability of, their Theranos tests[.]”117 Plaintiffs’ claims are based
on their belief that their own Theranos tests were inaccurate. Thus, plaintiffs are not in need
of being told anything more about the accuracy or inaccuracy of their respective Theranos
tests. Plaintiffs believe their tests are inaccurate, and any plausible claims that they may
eventually plead will go forward on that basis.
Conclusion
Defendants’ motions to dismiss118 are granted in part and denied in part.
Plaintiffs’ 1) fraud by affirmative misrepresentation claims in the First and Second
Causes of Action, 2) battery and medical battery claims in the Third and Sixteenth Causes
of Action, 3) negligence claim in the Fourth Cause of Action, 4) negligent misrepresentation

117

First Amended CCA Complaint at 119, ¶ 3, Docket No. 107.

118

Docket Nos. 122 and 123.
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claim in the Fifth Cause of Action, 5) breach of contract claim in the Sixth Cause of Action,
6) unjust enrichment claim based on affirmative misrepresentations in the Seventh Cause of
Action, 7) aiding and abetting claim based on affirmative misrepresentations in the Eighth
Cause of Action, 8) conspiracy claims in the Ninth and Eleventh Causes of Action, 9) RICO
claim which is based on allegations of mail fraud in the Tenth Cause of Action, 10)
California statutory claims in the Twelfth through Fifteenth Causes of Action, 11) claims
against Theranos or Walgreens which are based on a joint venture or agency theory of
liability, and 12) requests for injunctive relief are dismissed. In addition, A.R.’s Human
Subjects Act claim in the Seventeenth Cause of Action is dismissed.
Plaintiffs’ battery and medical battery claims in their Third and Sixteenth Causes of
Action, plaintiffs’ conspiracy claims in the Ninth and Eleventh Causes of Action, the Arizona
plaintiffs’ California statutory claims in the Twelfth through Fifteenth Causes of Action, any
claims against Theranos or Walgreens which are based on a joint venture or agency theory
of liability, A.R.’s Human Subjects Act claim in the Seventeenth Cause of Action, and
plaintiffs’ requests for injunctive relief are dismissed with prejudice
Plaintiffs are given leave to amend their 1) fraud by affirmative misrepresentation
claims in the First and Second Causes of Action, 2) negligence claim in the Fourth Cause of
Action, 3) negligent misrepresentation claim in the Fifth Cause of Action, 4) breach of
contract claim in the Sixth Cause of Action, 5) unjust enrichment claim which is based on
allegations of affirmative misrepresentations in the Seventh Cause of Action, 6) aiding and

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abetting claim which is based on affirmative misrepresentations in the Eighth Cause of
Action, and 7) RICO claim in the Tenth Cause of Action either in whole or in part. In
addition, A.R. is given leave to amend his California statutory claims in the Twelfth through
Fifteenth Causes of Action.
Should plaintiffs elect to file a second amended complaint, plaintiffs’ second amended
consolidated class action complaint shall be filed on or before July 13, 2017. Should
plaintiffs elect to file a second amended complaint, they are reminded that it is not necessary
to replead “[c]laims dismissed with prejudice and without leave to amend ... to preserve them
for appeal.” Lacey v. Maricopa Cty., 693 F.3d 896, 928 (9th Cir. 2012).
DATED at Anchorage, Alaska, this 13th day of June, 2017.
/s/ H. Russel Holland
United States District Judge

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