Lipton v. Chattem, Inc.
Filing
47
MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 4/10/2012.Mailed notice.(jlj)
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TRACEY LIPTON, on behalf of herself and all others
similarly situated,
Plaintiff,
vs.
CHATTEM, INC.,
Defendant.
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11 C 2952
Judge Feinerman
MEMORANDUM OPINION AND ORDER
Plaintiff Tracey Lipton brought this putative class action alleging that Defendant
Chattem, Inc. sold her a weight loss product, Dexatrim, contaminated with a toxic substance,
hexavalent chromium. The complaint, which alleges only economic injury and not physical
injury, purports to set forth state law claims under the Illinois Consumer Fraud and Deceptive
Business Practices Act (“ICFA”), 815 ILCS 505/1 et seq., and for intentional misrepresentation,
breach of the implied warranty of merchantability, and unjust enrichment. Chattem has moved to
dismiss the suit under Federal Rule of Civil Procedure 12(b)(1) for lack of standing and,
alternatively, under Rule 12(b)(6) for failure to state a claim. Lipton has declined to defend her
implied warranty of merchantability claim, Doc. 25 at 14-15, which accordingly is dismissed
with prejudice. See Alioto v. Town of Lisbon, 651 F.3d 715, 720-21 (7th Cir. 2011); Kirksey v.
R.J. Reynolds Tobacco Co., 168 F.3d 1039, 1040-41 (7th Cir. 1999). Chattem’s motion
otherwise is denied.
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Background
The complaint’s well-pleaded facts are assumed true on a motion under Rule 12(b)(1) and
12(b)(6), with all reasonable inferences drawn in Lipton’s favor. See Reger Dev., LLC v. Nat’l
City Bank, 592 F.3d 759, 763 (7th Cir. 2010); Apex Digital, Inc. v. Sears, Roebuck & Co., 572
F.3d 440, 443-44 (7th Cir. 2009); Patel v. City of Chicago, 383 F.3d 569, 572 (7th Cir. 2004).
The following facts are set forth as favorably to Lipton as permitted by the complaint; no
endorsement of these facts is intended at this juncture.
Chattem manufactures and sells Dexatrim, a product designed to cause weight loss. Doc.
1 at ¶ 9. Chattem advertises that Dexatrim “gives you the power to lose weight, curb binges, and
keep you in control of your diet.” Ibid. On its website, Chattem gives the following answer to
the question, “Is Dexatrim safe?”:
As with all dietary supplements, it is important to carefully follow the
recommended dosage and thoroughly read the warning label before stating
the regimen. Dexatrim is not an appropriate weight control aid for persons
suffering from certain medical conditions. Please see our label information
for each specific product … and consult your physician for further
information.
Id. at ¶ 10. Dexatrim’s packaging states that it is the “#1 Pharmacist Recommended Appetite
Suppressant.” Id. at ¶ 25.
In March 2010, ConsumerLab.com issued two reports on weight loss supplements. Id. at
¶¶ 11-12, 19-20. The organization reported that Dexatrim contained between 1.6 and 3.2
micrograms (mcgs) of hexavalent chromium. Id. at ¶¶ 17, 20. One of the reports states:
[Hexavalent chromium] is a more toxic form of chromium than the one our
bodies require, which is trivalent chromium … . Hexavalent chromium
does not occur in significant amounts naturally but is formed as an industrial
by-product. … Ingesting large amounts of [hexavalent chromium] can cause
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stomach upsets and ulcers, convulsions, kidney and liver damage, and even
death. [It] is also a carcinogen—it is the form of chromium implicated as
causing cancers in the movie Erin Brockovich. While it should not
normally be found in chromium supplements, it has been known to occur as
a contaminant.
Legal limits have not been established for the amount of hexavalent
chromium in supplements but the state of California is considering an
aggressive public health goal limiting hexavalent chromium in drinking
water to only 0.06 ppb—about 0.12 mcg per day. The California limit is
based on a one in one million lifetime cancer risk extrapolated from studies
in mice. [Dexatrim] contain[s] amounts of hexavalent chromium that would
exceed the maximum amount one could be exposed to from daily intake of
water under California’s proposed limit. … Although it is hard to know the
exact risks posed by these supplements, it seems prudent to avoid such
exposure to hexavalent chromium.
Id. at ¶¶ 14, 18. The Center for Disease Control and Prevention (“CDC”) raised similar concerns
about hexavalent chromium, stating:
An increased risk of lung cancer has been demonstrated in workers exposed to
[hexavalent chromium]. Other adverse health effects associated with [hexavalent
chromium] exposure include dermal irritation, skin ulceration, allergic contact dermatitis,
occupational asthma, nasal irritation and ulceration, perforated nasal septa, rhinitis,
nosebleed, respiratory irritation, nasal cancer, sinus cancer, eye irritation and damage,
perforated eardrums, kidney damage, liver damage, pulmonary congestion and edema,
epigastric pain, and erosion and discoloration of teeth.
Id. at ¶ 22.
Dexatrim’s promotional materials and labels do not disclose that it contains hexavalent
chromium and do not set forth the adverse health effects associated with ingesting hexavalent
chromium. Id. at ¶ 23. With respect to chromium-related substances, the packaging and labeling
state only that Dexatrim contains “Chromium.” Id. at ¶ 25. Lipton alleges that the packaging’s
statement that Dexatrim is the “#1 Pharmacist Recommended Appetite Suppressant,” coupled
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with the lack of warnings about the hexavalent chromium, implies that “Dexatrim is safe and
does not contain hexavalent chromium.” Ibid.
Lipton purchased Dexatrim numerous times since 2008. Id. at ¶ 24. Lipton made the
purchases “because she had been exposed to the promotion, advertising and marketing of
Dexatrim …, including representations on the packaging and labeling of Dexatrim to the effect
that Dexatrim was safe for consumption and that it did not contain hexavalent chromium, which
were false.” Ibid. The complaint alleges that “[a]s a direct result of Chattem’s deceptive
advertising, … [Lipton] was deceived into purchasing and spending money on Dexatrim. In
exchange for her money, [she] received something other than what was represented, a product
[she] did not seek. As a result, she was injured.” Id. at ¶ 26. The complaint further alleges that
“[h]ad warnings concerning the presence of hexavalent chromium in Dexatrim been given by
Chattem … [Lipton] would not have purchased Dexatrim and exposed [herself] to the potential
health problems associated with hexavalent chromium.” Id. at ¶ 27.
Based on these allegations, the complaint charges that Chattem violated the ICFA by
“fail[ing] to disclose the safety and health risks associated with Dexatrim[, which] injured
[Lipton because she] would not have purchased Dexatrim absent Chattem’s unfair and deceptive
trade practices,” id. at ¶¶ 38-43; that Chattem intentionally misrepresented that “Dexatrim is safe
for consumption and does not contain the hazardous chemical hexavalent chromium … ,
[causing Lipton to] los[e] money by purchasing a product that was not what it was represented to
be, which was worth less than [she] paid for it and which [she] would not have purchased but for
the misrepresentations,” id. at ¶¶ 51-56, and that Chattem has been unjustly enriched through its
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receipt of “excessive revenue derived from the sale of Dexatrim, which [Chattem] misrepresents
as being safe for consumption, when … it is not,” id. at ¶¶ 58-59.
Discussion
As noted above, Chattem has moved to dismiss under Rule 12(b)(1) for lack of standing
and under Rule 12(b)(6) for failure to state a claim.
I.
Rule 12(b)(1): Whether the Complaint Alleges Standing
To establish standing, a plaintiff must allege injury, causation, and redressability. See
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). Lipton’s alleged injury is financial;
she claims that she purchased a product worth less than what she paid for it, and also that she
would not have purchased the product had she known it contained hexavalent chromium. Doc. 1
at ¶¶ 3, 26-27, 42, 56; Doc. 25 at 1-2, 5, 7, 11. For the reasons given in In re Aqua Dots
Products Liability Litigation, 654 F.3d 748 (7th Cir. 2011), these allegations are sufficient to
establish standing.
The plaintiffs in Aqua Dots sued the manufacturer and distributors of a children’s toy
consisting of little beads that could be fused together to create designs. 654 F.3d at 749. When
swallowed, a chemical in the beads metabolized into gamma-hydroxybutyric acid (GHB),
commonly known as the “date rape” drug. Ibid. Children who swallowed a large number of
beads became sick, with some falling into comas. Id. at 749-50. The plaintiffs were not
physically injured children or their parents, but instead were the parents of children who suffered
no physical injury. Id. at 750. Despite the lack of physical injury, the Seventh Circuit held that
the plaintiff had standing. According to the court, the fact that the plaintiffs “did not suffer
physical injury, [did] not mean that they were uninjured. The plaintiffs’ loss is financial: they
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paid more for the toys than they would have, had they known of the risks the beads posed to
children. A financial injury creates standing.” Id. at 751.
The same result obtains here. The complaint alleges, among other things, that Lipton
paid more for Dexatrim than she would have paid had she known it contained hexavalent
chromium. As in Aqua Dots, this is sufficient to establish standing. See Askin v. Quaker Oats
Co., 818 F. Supp. 2d 1081, 1084 (N.D. Ill. 2011) (holding that the plaintiff had standing where
she alleged that she paid a premium for a food product based on the defendant manufacturer’s
false representations that the product did not contain unhealthy trans fats); Chacanaca v. Quaker
Oats Co., 752 F. Supp. 2d 1111, 1124-25 (N.D. Cal. 2010) (same); Gonzalez v. Pepsico, Inc.,
489 F. Supp. 2d 1233, 1240-41 (D. Kan. 2007) (same where the plaintiff alleged that she paid
more for beverages than they were worth because they potentially contained benzene).
Chattem attempts to distinguish Aqua Dots on the ground that the injury in Aqua Dots
was the diminished resale value of a durable good (the toys), while Lipton purchased a
consumable good that cannot be resold. Doc. 29-1 at 2-3. This argument is unconvincing. The
Seventh Circuit in Aqua Dots did not mention this distinction or even hint at its existence.
Moreover, even if Lipton is unable to resell the Dexatrim she purchased, she still suffered injury
because she (allegedly) paid more for the product than she would have had she known that it
contained hexavalent chromium.
The court recognizes that Hughes v. Chattem, Inc., 818 F. Supp. 2d 1112 (S.D. Ind.
2011), appeal dismissed, No. 11-3242 (7th Cir. Jan. 25, 2012), came to the opposite conclusion
in dismissing an identical case against Chattem on standing grounds. Id. at 117-20. It would
appear, however, that neither party in Hughes apprised the district judge of the Aqua Dots
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decision, which predated Hughes by only two weeks. This court therefore respectfully disagrees
with the result in Hughes. See Askin, 818 F. Supp. 2d at 1085 (opining that Hughes cannot be
reconciled with Aqua Dots).
II.
Rule 12(b)(6): Whether the Complaint States a Claim
Chattem offers several arguments as to why Lipton’s legal theories fail to state a claim.
The arguments are considered in turn.
A.
Actual Damages
Chattem argues that the complaint fails to allege actual damages and therefore does not
properly state claims under the ICFA or for intentional misrepresentation and unjust enrichment.
Actual damages is an element of Lipton’s ICFA and intentional misrepresentation claims. See
815 ILCS 505/10a(a) (ICFA); Avery v. State Farm Mut. Auto. Ins., Co., 835 N.E.2d 801, 849-50
(Ill. 2005) (same); Europlast, Ltd. v. Oak Switch Sys., Inc., 10 F.3d 1266, 1272 (7th Cir. 1993)
(intentional misrepresentation) (citing Soules v. Gen. Motors Corp., 402 N.E.2d 599, 601 (Ill.
1980)); see also In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1017 (7th Cir. 2002) (“No
injury, no tort, is an ingredient of every state’s law.”). Although loss or damage is not an element
of unjust enrichment, an unjust enrichment plaintiff “must show a detriment,” Cleary v. Philip
Morris Inc., 656 F.3d 511, 519 (7th Cir. 2011), which for present purposes will be treated as the
functional equivalent of actual damages. The actual damages requirement imposed by Illinois
law is distinct from the Article III injury requirement, so it is necessary to determine whether the
complaint adequately pleads actual damages even though it already has been found to plead
Article III standing. See Cole v. Gen. Motors Corp., 484 F.3d 717, 723 (5th Cir. 2007); Rifkin v.
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Bear Stearns & Co., 248 F.3d 628, 631-32 (7th Cir. 2001); Gonzalez, 489 F. Supp. 2d at 1240
n.7.
Illinois law provides benefit-of-the-bargain damages for individuals who have been
injured by fraud. Such damages ensure that “the defrauded party is … placed in the same
financial position he would have occupied had the misrepresentations in fact been true.” Price v.
Phillip Morris, Inc., 848 N.E.2d 1, 56 (Ill. 2005) (Karmeier, J., specially concurring) (citing
Martin v. Allstate Ins. Co., 416 N.E.2d 347, 352 (Ill. App. 1981)); see also id. at 79-80 (Freeman,
J. dissenting); Gerill Corp. v. Jack L. Hargrove Builders, Inc., 538 N.E.2d 530, 537-38 (Ill.
1989); Kim v. Carter’s Inc., 598 F.3d 362, 365 (7th Cir. 2010); Roboserve, Inc. v. Kato Kagaku
Co., 78 F.3d 266, 274 (7th Cir. 1996); Frye v. L’Oreal USA, Inc., 583 F. Supp. 2d 954, 957 (N.D.
Ill. 2008). Pertinent here, benefit-of-the-bargain damages may be awarded to compensate
purchasers of products who paid prices that were inflated by the defendant’s fraud. Such
plaintiffs may sue for the diminished value of the product—the difference between the product’s
value if the misrepresentations had been true and the product’s true value. See Wiegel v. Stork
Craft Mfg., Inc., 780 F. Supp. 2d 691, 694 (N.D. Ill. 2011) (plaintiffs sued to recover for the
diminished value of a defective crib); Muehlbauer v. Gen. Motors Corp., 431 F. Supp. 2d 847,
868-69 (N.D. Ill. 2006) (same for a car); Dewan v. Ford Motor Co., 842 N.E.2d 756, 760-63 (Ill.
App. 2005) (same); Miller v. William Chevrolet/GEO, Inc., 762 N.E.2d 1, 10-11 (Ill. App. 2001)
(same); Schiffner v. Motorola, Inc., 697 N.E.2d 868, 874-76 (Ill. App. 1998) (same for cell
phones); see also Connick v. Suzuki, 675 N.E.2d 584, 588 (Ill. 1996) (implicitly accepting a
damages theory based on the diminished resale value of defective cars); Perona v. Volkswagen of
Am., Inc., 684 N.E.2d 859, 862 (Ill. App. 1997) (same).
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As noted above, the complaint alleges that Lipton was injured because she purchased a
product that was worth less than she paid for it. The above-cited precedents establish that those
allegations are sufficient to plead actual damages under Illinois law. That said, the fact that the
complaint has alleged actual damages under Illinois law does not mean that Lipton will be able
to prove such damages. See Price, 848 N.E.2d at 59 (Karmeier, J., specially concurring) (an
economic injury plaintiff seeking recovery on the theory that she paid more for a product than
what it was worth must prove the existence of less expensive substitutes); In re Bisphenol-A
(BPA) Polycarbonate Plastic Prods. Liab. Litig., 687 F. Supp. 2d 897, 912-13 (W.D. Mo. 2009)
(suggesting that an economic injury plaintiff cannot recover the purchase price of the product if
the product has been consumed). The issue of proof will remain open on summary judgment
and, if the case survives summary judgment, at trial.
B.
Rule 9(b)
Lipton’s intentional misrepresentation and ICFA claims sound in fraud, Doc. 1 at ¶¶ 3842, 51-55, and therefore must satisfy the pleading requirements imposed by Federal Rule of Civil
Procedure 9(b). See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co.,
631 F.3d 436, 441 (7th Cir. 2011) (ICFA); Siegel v. Shell Oil Co., 480 F. Supp. 2d 1034, 1041
n.1 (N.D. Ill. 2007) (intentional misrepresentation) (citing cases). As a general rule, Rule 9(b)
requires the plaintiff to allege “the identity of the person who made the misrepresentation, the
time, place and content of the misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff.” Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d
771, 777 (7th Cir. 1994) (internal quotation marks omitted). “This ordinarily requires describing
the ‘who, what, when, where, and how’ of the fraud, although the exact level of particularity that
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is required will necessarily differ based on the facts of the case.” AnchorBank, FSB v. Hofer, 649
F.3d 610, 615 (7th Cir. 2011) (citation omitted). Rule 9(b) recognizes that “[m]alice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P.
9(b); see also Burks v. Raemisch, 555 F.3d 592, 594 (7th Cir. 2009).
Rule 9(b) is satisfied here. The complaint alleges that Lipton purchased Dexatrim in
reliance on the “packaging and labeling[, which] sa[id] that [Dexatrim] is the ‘#1 Pharmacist
Recommended Appetite Suppressant.’” Doc. 1 at ¶¶ 24-25. The labeling stated that Dexatrim
contained chromium, but failed to mention hexavalent chromium, which (allegedly) is a big
difference. Id. at ¶¶ 23, 25. Lipton generally alleges, as is allowed, that Chattem knew that its
statements were false and intended consumers to rely on them. Id. at ¶¶ 40-41, 53-54. And
Chattem did rely on them. Id. at ¶ 26-27, 38, 42, 55. These allegations are sufficient under Rule
9(b). See Stacel v. Teva Pharm., USA, 620 F. Supp. 2d 899, 902 (N.D. Ill. 2009); Muehlbauer,
431 F. Supp. 2d at 869-70; see also Connick, 675 N.E.2d at 595 (holding that vehicle purchasers
adequately pled an ICFA claim where the complaint alleged that Suzuki was aware of the
vehicles’ tendency to roll over, that Suzuki failed to disclose the safety problem, and that the
plaintiffs would not have purchased the vehicle had they been aware of the problem).
Relatedly, Chattem argues that “the alleged failure to list hexavalent chromium on the
Dexatrim label proves immaterial” “given that there are no regulations governing the presence or
disclosure of hexavalent chromium in dietary supplements.” Doc. 10 at 10. Materiality is an
element of an intentional misrepresentation claim and of an ICFA claim premised on fraud. See
Europlast, 10 F.3d at 1272 (intentional misrepresentation); 815 ILCS 505/2 (listing “suppression
or omission of any material fact” as an unfair or deceptive act under the ICFA); Jamison v.
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Summer Infant (USA), Inc., 778 F. Supp. 2d 900, 911 (N.D. Ill. 2011) (ICFA). Chattem forfeited
its materiality argument, however, by failing to develop the argument or to provide any
supporting authority. See Kramer v. Banc of Am. Sec., LLC, 355 F.3d 961, 964 n.1 (7th Cir.
2004); United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991).
Chattem’s materiality argument fails on the merits in any event, at least at the pleading
stage. To state a tort claim, a complaint need not allege that the defendant’s conduct violated a
federal safety regulation. See Vancura v. Katris, 939 N.E.2d 328, 344 (Ill. 2010) (citing Christou
v. Arlington Park-Wash. Park Race Tracks Corp., 432 N.E.2d 920, 924 (Ill. App. 1982), for the
proposition that “[c]ompliance with statutes and safety regulations is not conclusive evidence on
the question of negligence”); Restatement (Third) of Torts: Prod. Liab. § 4(b) (1998) (“a
product’s compliance with an applicable product safety statute or administrative regulation is
properly considered in determining whether the product is defective with respect to the risks
sought to be reduced by the statute or regulation, but such compliance does not preclude as a
matter of law a finding of product defect”); Restatement (Second) of Torts § 288C (1965)
(“Compliance with a legislative enactment or an administrative regulation does not prevent a
finding of negligence where a reasonable man would take additional precautions.”). This ruling
does not preclude Chattem from again raising materiality on summary judgment or at trial. See
J.C. Whitney & Co. v. Renaissance Software Corp., 2000 WL 556610, at *9 (N.D. Ill. Apr. 19,
2000) (“materiality [is a] question[] of fact and therefore not generally a viable basis for a Rule
12(b)(6) dismissal.”); Napcor Corp. v. JP Morgan Chase Bank, NA, 938 N.E.2d 1181, 1188 (Ill.
App. 2010).
C.
The Economic Loss Rule
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Finally, Chattem argues that the economic loss rule imposed by Illinois law defeats
Lipton’s intentional misrepresentation claim. Doc. 10 at 10-11. The economic loss rule prevents
the recovery of pure economic damages for tort claims premised on strict liability or negligence.
Moorman Mfg. Co. v. Nat’l Tank Co., 435 N.E.2d 443, 448-52 (Ill. 1982). The rule does not
apply to torts sounding in intentional misrepresentation. See id. at 452 (“This court has held that
economic loss is recoverable where one intentionally makes false representations.”); 2314
Lincoln Park West Condo. Ass’n v. Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346, 352 (Ill.
1990); Waldinger Corp. v. CRS Grp. Eng’rs, Inc., Clark Dietz Div., 775 F.2d 781, 791-92 (7th
Cir. 1985); Lorillard Tobacco Co. v. Elston Self Serv. Wholesale Groceries, Inc., 2009 WL
1635735, at *6 (N.D. Ill. June 9, 2009). Lipton’s intentional misrepresentation claim therefore
survives the economic loss rule.
Conclusion
For the foregoing reasons, Chattem’s motion to dismiss is granted as to the implied
warranty of merchantability claim and denied as to Lipton’s other claims.
April 10, 2012
United States District Judge
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