Dunn v. Santa Fe Natural Tobacco Company Inc
Filing
112
MEMORANDUM OPINION AND ORDER by District Judge James O. Browning granting in part and denying in part the Defendants' Request for Judicial Notice in Support of Motion to Dismiss 71 and the requests in the Defendants' Motion to Dismiss the Consolidated Amended Complaint and Incorporated Memorandum of Law 90 , and granting the Defendants' Second Motion for Judicial Notice in Support of The Motion to Dismiss the Consolidated Amended Complaint 91 , and the Defendants Third Motion for Judicial Notice in Support of the Motion to Dismiss the Consolidated Amended Complaint 109 (meq)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
IN RE: SANTA FE NATURAL TOBACCO
COMPANY MARKETING & SALES
PRACTICES AND PRODUCTS
LIABILITY LITIGATION
No. MD 16-2695 JB/LF
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on: (i) the Defendants’ Request for Judicial Notice
in Support of Motion to Dismiss, filed November 18, 2016 (Doc. 71)(“First JN Motion”);
(ii) Defendants’ Second Motion for Judicial Notice in Support of the Motion to Dismiss the
Consolidated Amended Complaint, filed February 23, 2017 (Doc. 91)(“Second JN Motion”);
(iii) Defendants’ Third Motion for Judicial Notice in Support of the Motion to Dismiss the
Consolidated Amended Complaint, filed May 30, 2017 (Doc. 109)(“Third JN Motion”); and (iv) the
Defendants’ Motion to Dismiss the Consolidated Amended Complaint and Incorporated
Memorandum of Law, filed February 23, 2017 (Doc. 90)(“MTD”). The Court held hearings on June
16, 2017 and July 20, 2017. The primary issues are: (i) whether the Court may consider the items
presented in the First JN Motion, the Second JN Motion, and the Third JN Motion without
converting the MTD into one for summary judgment; (ii) whether the Court may exercise personal
jurisdiction over Reynolds American, Inc. for claims that were not brought in a North Carolina
forum; (iii) whether the Federal Trade Commission’s Decision and Order, In re Santa Fe Nat.
Tobacco Co., No. C-3952 (FTC June 12, 2000), filed November 18, 2016 (Doc. 71)(“Consent
Order”), requiring Defendant Santa Fe Natural Tobacco Company, Inc. to use a disclosure that “No
additives in our tobacco does NOT mean a safer cigarette” impliedly preempts the Plaintiffs’1 claims
1
There are twelve named Plaintiffs in this action: Jacques-Rene Hebert and Albert Lopez,
citizens of the State of Illinois; Sara Benson, a citizen of the State of Colorado; Justin Sproule and
to the extent that the Defendants’ advertising misled the Plaintiffs into believing that Natural
American cigarettes are safer or healthier than other cigarettes; (iv) whether “natural,” “additivefree,” and “substantially similar terms” mislead a consumer into believing: (a) that Natural American
cigarettes are safer or healthier than other cigarettes, (b) that Natural American’s menthol cigarettes
do not include any additives; or (c) that Natural American cigarettes undergo fewer engineering
processes than other cigarettes; (v) whether the Defendants’ use of those descriptors is protected
commercial speech under the First Amendment to the Constitution of the United States of America;
(vi) whether state law safe harbors shield the Defendants from liability; (vii) whether the Plaintiffs’
unjust-enrichment claims fail, because: (a) the descriptors did not deceive consumers, so there is no
injustice for equity to correct; (b) the Plaintiffs have an adequate legal remedy under the various
state consumer statutes; or (c) state specific law otherwise bars them; (viii) whether the Plaintiffs’
breach-of-express-warranty claims are barred, because: (a) the FDA-mandated disclosure and the
menthol ingredient modify the warranty such that there is no breach; (b) the Plaintiffs’ Consolidated
Complaint, filed January 12, 2017 (Doc. 82)(“Amended Complaint”) does not serve as the requisite
pre-litigation notice under California, Florida, Illinois, New Mexico, New York, and North Carolina
law; and (c) the Plaintiffs failed to allege privity of contract with the Defendants as required by
Florida, Illinois, and New York law; and (ix) whether the Memorandum of Agreement Between the
United States Food and Drug Administration’s (FDA) Center for Tobacco Products (CTP) and RAI
Services Company (RAIS)/Santa Fe Natural Tobacco Company, Inc. (Santa Fe), dated January 19,
2017, filed February 23, 2017 (Doc. 91-1)(“Memorandum of Agreement), in which the Defendants
Joshua Horne, citizens of the State of Florida; Abigail Emmons and Ceyhan Haskal, citizens of the
State of New Mexico; Rudolph Miller and Charlene Blevins, citizens of the State of North Carolina;
Carol Murphy, a citizen of the State of Idaho; Robert Litwin, a citizen of the State of Maryland; and
Francisco Chavez, a citizen of the State of California. See Amended Complaint ¶¶ 12-23, at 4-11,
filed January 12, 2017 (Doc. 82).
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agree to remove the descriptors from its packaging and labeling, except for the term natural in its
brand name, renders the Plaintiffs’ request for injunctive relief moot.
The Court concludes that: (i) the Court may consider all but one of the documents the
Defendants submit without converting the MTD into one for summary judgment, because the
documents are incorporated in the Amended Complaint by reference, or they are government
documents publically available and capable of ready and accurate determination; (ii) the Court lacks
personal jurisdiction over Reynolds American, as to the claims filed outside of North Carolina;
(iii) the Consent Order does not preempt the Plaintiffs’ claims, because (a) a consent order is not a
“law” under the Supremacy Clause, (b) the Consent Order -- as an agreement not to enforce a federal
statute -- does not permit conduct; (c) the Consent Order only binds the parties to it, so does not bind
all of the Defendants; and (d) the Consent Order covers only the Defendants’ advertising, so cannot
preempt the Plaintiffs’ claims targeting the Defendants’ labeling; (iv) the descriptors “natural,”
“organic,” and “additive-free” would mislead a reasonable consumer into believing that: (a) Natural
American Cigarettes are healthier or safer than other cigarettes, because decades of marketing have
equated those terms with healthy products; and (b) Natural American menthol cigarettes have no
additives, because menthol is a substance that a reasonable consumer would not know much about;
(v) the First Amendment does not protect the Defendants’ use of the descriptors at issue, because the
state action doctrine precludes a First Amendment defense to the claims premised on mutual assent,
and the government has a substantial interest in regulating deceptive commercial speech regarding
tobacco products; (vi) the state-law safe harbors do not preclude relief, except in Illinois, because the
Consent Order does not permit conduct, and the Ohio consumer protection claims are barred for
state-specific reasons; (vii) Rule 8 allows pleading in the alternative, but New Jersey and Ohio law
do not permit the Plaintiffs’ unjust-enrichment claims, because the Plaintiffs cannot allege a
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remuneration nor can they allege that they conferred a direct benefit on the Defendants;
(viii) Florida, Illinois, and New York law preclude the Plaintiffs’ express warranty claims, because
the Plaintiffs Amended Complaint cannot serve as the requisite pre-litigation notice, and are
independently defective under Florida and Illinois law, because there is no privity between the
Plaintiffs and the Defendants; and (ix) the Plaintiffs’ request for injunctive relief is not rendered
moot, because the Memorandum of Agreement is subject to a lawsuit that might invalidate it. The
Court therefore grants the MTD in part and denies it in part.
FACTUAL BACKGROUND
The Court takes the facts from the Amended Complaint. As the Court must, it accepts all
factual allegations in the Amended Complaint as true for the purposes of a motion to dismiss. See
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Court may also consider facts judicially noticed on a motion to dismiss without converting the
motion into one for summary judgment. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
322 (2007)(“[C]ourts must consider the complaint in its entirety, as well as . . . matters of which a
court may take judicial notice.”); S.E.C. v. Goldstone, 952 F. Supp. 2d 1060, 1191 (D.N.M.
2013)(Browning, J.). The Court recites facts from the documents included in the First JN Motion,
the Second JN Motion, and the Third JN Motion to the extent that the Court concludes that it can
consider those documents. See infra § I (“The Court concludes that it may consider all of the
documents, which the Defendants submit, except the FTC Letter, without converting the MTD into
one for summary judgment.”).
Santa Fe Tobacco is a New Mexico corporation that sells Natural American Spirit cigarettes
and uniformly advertises them as “Natural” and “100% Additive Free.” Amended Complaint ¶¶ 1,
24, 40, at 1, 12, 15. Those same descriptors appear on Natural American cigarettes’ packaging.
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Amended Complaint ¶ 4, at 2. The twelve named Plaintiffs believed that, based on those terms and
others, Natural American cigarettes were “safer and healthier” than other cigarettes. Amended
Complaint ¶¶ 12-23, at 4-11. Because of that belief, the Plaintiffs purchased Natural American
cigarettes at a premium over other cigarettes. See Amended Complaint ¶¶ 11-23, at 3-11.
Reynolds American -- Santa Fe Tobacco’s parent corporation -- is heavily involved in
Natural American cigarette advertising, and approves “all decisions” that Santa Fe Tobacco makes
“with respect to the marketing, design, and composition.” Amended Complaint ¶ 28, at 12.
Reynolds American actively monitors the publications in which Natural American cigarettes are
advertised. See Amended Complaint ¶ 28, at 12-13. Santa Fe Tobacco’s and Reynolds American’s
assets are identical, and Reynolds American “essentially controls” Santa Fe Tobacco’s business
initiatives, capital expenditures, and financial operations. Amended Complaint ¶ 35, at 13-14.
Natural American advertisements from 2013 through 2015 include images of water and
plants, along with statements like: “When you work with the best materials, you don’t need to add
anything else. That’s why we use only tobacco and water. We stick with premium quality, whole
leaf natural tobacco that’s 100% additive-free for a very simple reason -- it’s all we need.” Tobacco
& Water Advertisement at 113-114, filed November 18, 2016 (Doc. 71-1)(“Tobacco & Water
Advertisement”). See Complaint ¶ 43, at 17-21. Advertisements from that period also state in large
bold writing, “100% ADDITIVE-FREE NATURAL TOBACCO,” and advertisements include, in
smaller writing, “No additives in our tobacco does NOT mean a safer cigarette.” Tobacco and
Water Advertisement (all caps, bold, and emphasis in original); Complaint ¶ 43, at 17-21(all caps,
bold, and emphasis in original). In 2015, the Defendants launched a nationwide advertising
campaign and targeted Sports Illustrated, Time, Field and Stream, Southern Living, Architectural
Digest, Vanity Fair, and US Weekly magazines. See Amended Complaint ¶ 44, at 21. Regarding
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that advertising campaign, a spokesman for Santa Fe Tobacco explained: “The aim is to drive brand
awareness, highlight Natural American Spirit’s 100-percent additive-free natural tobacco
proposition.” Amended Complaint ¶ 45, at 21-22.
Natural American cigarettes are the most expensive major brand of cigarette.
See
Complaint ¶ 88, at 36. Reynolds American explains that the higher price stems from “its use of all
natural, additive-free tobacco.” Complaint ¶ 89, at 36 (citing Reynolds American, Inc. Form 10-Q
United States Securities and Exchange Commission Filing for the Quarterly Period Ended March 31,
2016, available at http://s2.q4cdn.com/129460998/files/doc_financials/2016/RAI-Q116-10-Q.pdf
(last visited Oct. 28, 2017)). Despite their higher price, Natural American cigarette sales increased
eighty-six percent from 2009 through 2014, while cigarette sales in the United States of America
declined overall by seventeen percent. See Amended Complaint ¶ 45, at 22. Its market share during
a similar period “more than doubled.” Amended Complaint ¶ 45, at 22. Between 2014 and 2015
alone, Natural American cigarette sales increased by 21.4%. See Amended Complaint ¶ 45, at 22.
The Plaintiffs cite numerous studies regarding the popularity and consumer perceptions of
cigarettes branded as “natural.” Amended Complaint ¶¶ 50-54, at 23-27.2 On August 27, 2015, the
2
The Amended Complaint notes that, in 2007, researchers at the University of California
performed a study regarding the ways in which smokers “down-play the risks” by determining that
“natural” cigarettes are safer or healthier than other cigarettes containing chemicals. Amended
Complaint ¶ 50, at 23 (quoting McDaniel, Patricia A. & Ruth E. Malone, “I Always Thought They
Were All Pure Tobacco”: American Smokers’ Perceptions of “Natural” Cigarettes and Tobacco
Industry Advertising Strategies, 16(6) Tobacco Control (2007), available at
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2807204/. The study, according to the Plaintiffs,
concludes that tobacco companies seek to alleviate smokers’ concerns about health by modifying
products and describing them as “natural.” Amended Complaint ¶ 51, at 22-23. The Amended
Complaint notes that a study from the Schroeder Institute, a non-profit that researches tobacco and
policy with a goal of reducing tobacco use, observes that consumers rely on companies’ branding of
cigarettes as “‘natural, organic, and additive free,’” so such branding possibly encourages consumers
to try a product that they otherwise would not try or to switch to Natural American cigarettes rather
than quitting smoking. Amended Complaint ¶ 52, at 24 (quoting Pearson, Jennifer L., et al.,
Misperceptions of harm among Natural American Spirit smokers: results from wave 1 of the
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Food and Drug Administration (“FDA”) sent a Warning Letter, filed November 18, 2016 (Doc. 711)(Ex. 8)(“Warning Letter”) to Santa Fe Tobacco asserting that some of the Defendants’ cigarette
labeling practices “explicitly and/or implicitly” represent that Natural American cigarettes do not
contain certain materials, so they represent that Natural American cigarettes pose less of a risk than
other tobacco products. Amended Complaint ¶ 58, at 28-29 (quoting Warning Letter at 2). Santa Fe
Tobacco previously entered into a Consent Order with the FTC regarding its advertising practices,
because the FTC had concerns that the Defendants’ advertising mislead consumers into believing
that “Additive-Free” or “Chemical-Free” cigarettes are safer or less harmful than other tobacco
products. Consent Order at 1-10 [on CM/ECF at 10-19]. The Consent Order requires that,
“beginning no later than (30) days after the date of service of this order,” Santa Fe Tobacco’s
advertisements must display the warning: “No additives in our tobacco does NOT mean a safer
cigarette.” Consent Order, at 4 [at 13 on CM/ECF]. Among other requirements, this statement must
be “[i]n the same style and type size as that required for health warnings for tobacco cigarettes.”
Consent Order at 3 [at 12 on CM/ECF]. A later “Assurance of Voluntary Compliance” stipulates
that, effective March 1, 2010, all advertisements found in either “display or distribution” of any
Santa Fe Tobacco cigarette made with organic tobacco should display the statement “Organic
Population Assessment of Tobacco and Health (PATH) study (2013-2014) at 1, Tobacco Control
(Dec. 6, 2016)(“Misperceptions”). The study further finds, according to the Plaintiffs, that 8.3
percent of other cigarette brand smokers believe that their brand is “less harmful than other brands”
whereas 63.9 percent of Natural American smokers believe that their brand is less
harmful. Amended Complaint ¶ 52, at 24 (quoting Misperceptions, at 1). Additionally, the study
determines that Natural American smokers believe their brand is less harmful, because the branding
has “natural” and “additive free” descriptors. Amended Complaint ¶ 52, at 25 (citing
Misperceptions, at 1). In a recent survey of 1000 smokers in the United States, sixty percent believe
that cigarettes without additives are safer to smoke than other cigarettes, and seventy-three percent
think that cigarettes containing additives are more dangerous than cigarettes that do not contain
additives. See Amended Complaint ¶ 53, at 25-26 (citing Cummings, K.M., et al., Are smokers
adequately informed about the health risks of smoking and medicinal nicotine?, Nicotine & Tobacco
Research 6(3), 333-340 (2004)).
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tobacco does NOT mean a safer cigarette.” Assurance of Voluntary Compliance at 5-6 [on CM/ECF
at 33-34], (dated March 1, 2010), filed November 18, 2016 (Doc. 71-1)(ex. F)(“Voluntary
Compliance Agreement”).
Neither the Plaintiffs nor the Defendants allege that Natural American cigarettes are in any
way safer than other cigarettes. See Amended Complaint ¶ 59, at 29. One scientific study,
according to the Plaintiffs, found that Natural American blue box cigarettes contain the highest level
of polycyclic aromatic hydrocarbons3 of fifty United States cigarette brands tested. See Amended
Complaint ¶ 61, at 29 (citing An T. Vu et al., Polycyclic Aromatic Hydrocarbons in the Mainstream
Smoke of Popular U.S. Cigarettes, National Center for Biotechnological Information (July 30, 2015)
available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4540633/). Also according to the
Plaintiffs, the Centers for Disease Control and Prevention found that Natural American cigarettes
contain higher concentrations of both cadmium and mercury than the other fifty varieties of United
States cigarettes tested.4 See Amended Complaint ¶ 62, at 30 (citing Mark R. Fresquez, R. Steven
Pappas, and Clifford H. Watson, Establishment of Toxic Metal Reference Range in Tobacco from
U.S. Cigarettes, J. Analytical Toxicology, 37(5) 298-304 (2013)). Another study evaluated the
levels of “free-base” nicotine in United States cigarettes, and the Plaintiffs allege that it determined
that Natural American cigarettes has a higher nicotine concentration than Camel, Marlboro, and
3
Polycyclic aromatic hydrocarbons are “the sooty part of smoke or ash.”
Polycyclic
Aromatic Hydrocarbons (PAHs), Wisconsin Department of Health Services (March 13, 2017)
available at https://www.dhs.wisconsin.gov/chemical/pah.htm (last accessed October 27, 2017).
4
Cadmium and mercury are both heavy metals that have adverse health effects. See
Amended Complaint ¶ 62, at 30. Cadmium is a carcinogen that is linked to chronic obstructive
pulmonary disease and nephrotoxicity -- a toxicity of the kidneys. See Amended Complaint ¶ 62, at
30.
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Winston-brand cigarettes.5 Amended Complaint ¶ 66, at 31 (citing Pankow, J., Barsanti, K., &
Peyton, D., Fraction of Free-Base Nicotine in Fresh Smoke Particulate Matter from the Eclipse
Cigarette by 1H NMR Spectroscopy, Chem. Res. in Toxicology 16(1): 23-27 (2003)).
Although labeled as “additive free,” the Defendants add menthol in certain varieties of
Natural American cigarettes. See Amended Complaint ¶ 68, at 31. Natural American cigarettes are
also “flue-cured,” meaning that the Defendants process the tobacco with heat to secure the sugars,
which synthetically lowers the cigarette smoke’s pH6 and makes it easier to inhale. Amended
Complaint ¶ 72, at 32.
The tobacco in the Defendants’ cigarettes is artificially blended and
modified, much like other cigarettes in the industry. See Amended Complaint ¶¶ 73-74, at 33.
Despite these alterations to the tobacco product, the Natural American cigarettes are labeled
“Natural.” Amended Complaint ¶¶ 74-76, at 33.
PROCEDURAL BACKGROUND
The Plaintiffs brought thirteen separate actions in eight federal district courts, alleging similar
liability theories. See In re Santa Fe Nat. Tobacco Co. Mktg. & Sales Practices Litig., 178 F. Supp.
3d 1377, 1378 (U.S. Jud. Pan. Mult. Lit. 2016)(“Transfer Order”).7 One Plaintiff with an action
pending in the District of New Mexico, Ceyhan Haskal, moved for centralization under 28 U.S.C §
5
Free-base nicotine is a basic form of nicotine that is more volatile, particularly when
smoked. See Amended Complaint ¶ 64, at 30. Free-base nicotine is therefore more quickly
absorbed into the lungs when smoking, and as a result, reaches the brain faster. See Amended
Complaint ¶ 64, at 30. Elevated concentrations of free-base nicotine do not arise naturally. See
Amended Complaint ¶ 66, at 31.
6
pH is a measure of hydrogen ion concentration in a solution, and signals a solution’s acidity
or alkalinity. See Anne Marie Helmenstine, pH Definition and Equation in Chemistry, Chemistry
Glossary Definition of pH at 1 (August 31, 2017) available at https://www.thoughtco.com/definitionof-ph-in-chemistry-604605.
7
The Court now has sixteen separate actions before it. See In Re Santa Fe Natural Tobacco
Co. Marketing and Sales Practice Litig., No. 16-2695 (Apr. 11, 2016).
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1407. See Transfer Order, 178 F. Supp. 3d at 1378. Santa Fe Tobacco and Reynolds American
opposed centralization, but agreed that the District of New Mexico was an appropriate transferee
forum. See Transfer Order, 178 F. Supp. 3d at 1378. All responding Plaintiffs agreed on
centralization, but disagreed upon the transferee district.8 See Transfer Order, 178 F. Supp. 3d at
1378. The Judicial Panel on Multidistrict Litigation concluded that the actions presented “involve
common questions of fact, and that centralization will serve the convenience of the parties,” and
ordered consolidation. Transfer Order, 178 F. Supp. 3d at 1378-79. The Panel further concluded
that the District of New Mexico was an appropriate transferee district because: (i) Santa Fe Natural
Tobacco is headquartered in the District of New Mexico; (ii) key witnesses reside in the District of
New Mexico; (iii) four actions were pending in the District of New Mexico; (iv) the Defendants
agreed that the District of New Mexico provides a “convenient and accessible location for the
geographically dispersed litigation”; and (v) centralizing before the Court allowed the Panel “to
assign [the] litigation to an able and experienced jurist who has not had the opportunity to preside
over [a multidistrict litigation].” Transfer Order, 178 F. Supp. 3d at 1379.
1.
The Motion to Dismiss.
The Defendants move to dismiss all claims under rule 12(b)(6) of the Federal Rules of Civil
Procedure. See MTD at 1. The Defendants marshal ten arguments in favor of full or partial
8
Section 1407 (c) provides as follows:
The panel shall give notice to the parties in all actions in which transfers for
coordinated or consolidated pretrial proceedings are contemplated, and such notice
shall specify the time and place of any hearing to determine whether such transfer
shall be made. . . . The panel’s order of transfer shall be based upon a record of such
hearing at which material evidence may be offered by any party to an action pending
in any district that would be affected by the proceedings under this section, and shall
be supported by findings of fact and conclusions of law based upon such record.
28 U.S.C. § 1407(c).
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dismissal: (i) the Consent Order preempts the Plaintiffs’ claims; (ii) the First Amendment shields the
Defendants from liability; (iii) state statutory safe harbors protect the Defendants from the Plaintiffs’
unfair and deceptive practice claims; (iv) the unfair and deceptive practice claims fail, because the
Defendants’ statements do not mislead a reasonable consumer; (v) the unjust-enrichment claims fail,
because the Defendants’ cigarette advertising is not misleading; (vi) unjust-enrichment is improperly
pled, because the Plaintiffs either have a legal remedy or state law otherwise bars the claims; (vii)
the Defendants did not breach an express warranty; (viii) the Plaintiffs did not give pre-litigation
notice and fail to establish privity; (ix) the Plaintiffs’ request for injunctive relief is rendered moot;
and (x) the Court does not have specific or general personal jurisdiction over Reynolds America with
respect to the Plaintiffs’ claims who were not parties to the North Carolina suit. See MTD at 6-80.
Before addressing the Defendants’ arguments, some context to the Plaintiffs’ claims would
aid in understanding the issues before the Court. The Plaintiffs allege that the Defendants
packaging, labeling, and advertising deceived them in three ways. The three theories of deception
are as follows:
(1)
The Safer-Cigarette Theory: the Plaintiffs argue that the use of the terms
organic, natural, and additive-free mislead tobacco consumers into believing
that Natural American cigarettes are safer and healthier. See Amended
Complaint ¶¶ 4-8, 47-66, at 2-3, 22-31; MTD at 22-24.
(2)
The Menthol Theory: the Plaintiffs argue that, by labeling Natural
Americans cigarettes with menthol “additive-free” and “natural,” the
Defendants mislead menthol consumers, because menthol is an additive. See
Amended Complaint ¶¶ 10, 67-69 at 3, 31-32; MTD at 24-25.
(3)
The Unprocessed-Cigarette Theory: the Plaintiffs argue that, by labeling
Natural American cigarettes as Natural, the Defendants mislead consumers
into believing that Natural American cigarettes are not subjected to rigorous
engineering processes during production. See Amended Complaint ¶¶ 9, 7074, at 3, 32-33; MTD at 25.
Turning to the Defendants’ arguments, first, the Defendants assert that the Consent Order
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preempts the Plaintiffs’ state law claims premised on the Safer-Cigarette Theory. See MTD at 6-7.
According to the Defendants, the Consent Order “authorized Santa Fe [Tobacco]’s use of ‘Additive
Free’ and all other ‘substantially similar terms’ (such as ‘Natural’)” in Santa Fe Tobacco’s
advertisement, as long as it also disclosed in those advertisements that no additives does not mean a
safer cigarette. MTD at 6-7.9 The Defendants conclude that, because the Consent Order authorized
the terms, it preempts the Plaintiffs’ state claims under the Supremacy Clause. MTD at 8-10 (citing
Chamber of Commerce of United States v. Edmondson, 594 F.3d 742, 765 (10th Cir. 2010)).
The Defendants also declare that the Consent Order is not a “minimum ‘floor’ that state law
can supplant.” MTD at 14. They argue that the FTC, in making its determination, reconciled
“competing interests” -- the speaker’s right to make truthful representations versus the consumers’
right not to be misled -- and that the Plaintiffs seek, with their state claims, to undercut the balance
that the FTC struck. MTD at 14. According to the Defendants, the Consent Order, thus, does not set
a floor, but creates a scale that the Supremacy Clause prevents from tipping toward the Plaintiffs.
See MTD at 14.
The Defendants also assert that the FDA’s Warning Letter does not undermine their
preemption arguments. See MTD at 15. The Defendants note that, the Warning Letter states that
Santa Fe Tobacco’s advertising language violated the Family Smoking Prevention and Tobacco
Control Act, 21 U.S.C. § 387 (“Tobacco Control Act”). See MTD at 15. Nevertheless, the
Defendants argue that the Warning Letter does not change the preemption analysis, because the
Warning Letter does not state that the terms “Natural” and “Additive-Free” are false or misleading;
rather, it requires the Defendants to obtain FDA approval before using those terms. MTD at 17. The
9
The Defendants also argue that their use of the term “organic” does not give rise to liability,
because the United States Department of Agriculture regulations govern the use of the term
“organic,” and the Assurance of Voluntary Compliance requires the Defendants to disclose that
“Organic Tobacco does NOT mean a safer cigarette.” MTD at 12 n.3 (emphasis in original).
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Defendants also assert that the Warning Letter cannot overrule the Consent Order, because the
Tobacco Control Act cannot reasonably “be construed as limiting or diminishing the authority of the
Federal Trade Commission.” MTD at 17 (quoting 21 U.S.C. § 387n(a)(1)). Although they concede
that the Tobacco Control Act states that “‘[a]ny advertising that violates’ the Act ‘is an unfair or
deceptive act or practice,’” the Defendants maintain that the Warning Letter is not a “binding
determination” that the Defendants have violated the Tobacco Control Act, nor does it abrogate the
Consent Order. MTD at 17 (quoting 21 U.S.C. § 387n(a)(1)).
Second, the Defendants argue that the First Amendment shields them from liability. See
MTD at 20. The Defendants contend that the First Amendment is relevant here, even though it
typically protects speakers only from government action, because the First Amendment protects
speakers also from state tort suits “that seek to stifle or punish protected speech.” MTD at 20 (citing
Snyder v. Phelps, 562 U.S. 443, 451 (2011); Hill v. Pub. Advocate of the U.S., 35 F. Supp. 3d 1347,
1357 (D. Colo. 2014)(Daniel, J.)). They then aver that Central Hudson & Gas Electric Corporation
v. Public Service Commission of New York, 447 U.S. 557 (1980)(“Central Hudson”) demonstrates
that they are shielded from liability, because: (i) their advertising is not misleading; (ii) there is no
substantial interest in silencing the Defendants’ speech; (iii) silencing the Defendants’ speech does
not advance a legitimate governmental interest; and (iv) the Plaintiffs’ requests are not narrowly
tailored. See MTD at 21.
The Defendants argue that their speech is “lawful” and “not misleading.” MTD at 21. First,
they aver that adult cigarette usage is lawful. See MTD at 21 (citing Lorillard Tobacco Co. v. Reilly,
533 U.S. 525, 564 (2001)). Second, they argue that the “natural” and “additive-free” labeling is not
misleading, given their disclosure that: “No additives in our tobacco does NOT mean a safer
cigarette.” MTD at 21 (emphasis in original). Third, they assert that the Plaintiffs’ three theories of
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deception do not demonstrate that the Defendants’ speech is inherently misleading. See MTD at 22.
They contend that, under established caselaw, the First Amendment does not protect inherently
misleading speech, and inherently misleading speech is speech that is incapable of being presented in
a non-deceptive way such that it would be misleading under all circumstances. See MTD at 22
(citing Revo v. Disciplinary Bd. of the N.M. S. Ct., 106 F.3d 929, 933 (10th Cir. 1997); Bioganic
Safety Brands, Inc. v. Ament, 174 F. Supp. 2d 1168, 1181 (D. Colo. 2001)(Babcock, J.)). The
Defendants argue that “Natural” and “Additive-Free” can be presented in non-deceptive way,
because the FTC-approved disclosure that additive-free cigarettes are not inherently healthier
repudiates the inference that Natural American cigarettes are healthier than other cigarettes. MTD at
22-23. The Defendants also argue that it is not inherently misleading to label their menthol
cigarettes “additive-free,” because “consumers are not misled by a product’s inclusion of an
ingredient that serves as one of its primary distinguishing and desired characteristics.” MTD at 24.
They also argue that the “additive-free” labeling is not misleading, because it refers to additive-free
tobacco and the menthol is added to the cigarette filters and not to the tobacco. MTD at 24. Finally,
they assert that the “Natural” labeling is not misleading, even though the Defendants subject the
cigarettes to an engineering process during production, because “Natural” is too expansive a concept
to mislead any consumers. MTD at 25-26 (citing Grocery Assoc. v. Sorrell, 102 F. Supp. 3d 583
(D. Vt. 2015)(Reiss, C.J.)).
The Defendants next contend that there is not a substantial interest in silencing their speech,
because it is truthful and the Government has no interest in preventing truthful speech. See MTD at
27. They also argue that preventing the Defendants from using “natural” and “additive-free” does
not materially advance the Plaintiffs’ interest in preventing consumer deception, because the FTCmandated disclosure already prevents deception, so imposing liability will not “further advance their
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interest . . . to a material degree.” MTD at 28-29 (emphasis in original). Finally, the Defendants
argue that the relief requested is not narrowly tailored, because an additional disclosure would
suffice. See MTD at 29-30.
Third, the Defendants argue that state safe harbors shield them from the Plaintiffs’ statutory
claims. See MTD at 30. The Defendants argue that the California, Colorado, Florida Count 1,
Illinois, Massachusetts, Michigan, New York, Ohio, and Washington claims fail, because federal law
-- specifically, the Consent Order -- permits the Defendants’ advertising, and the various states’ safe
harbors foreclose liability for conduct that federal law permits. See MTD at 31-35, 37-39. The
Defendants also argue that the New Jersey and North Carolina claims fail, because those states’ safe
harbors preclude liability for conduct that has been concretely or pervasively regulated, and,
according to the Defendants, the Consent Order “deal[t] specifically, concretely, and pervasively”
with their advertising. MTD at 35-36, 38.
Fourth, the Defendants aver that fourteen of the Plaintiffs’ nineteen state statutory claims fail,
because their advertising is not false or misleading to a reasonable consumer. See MTD at 39-40.
The Defendants contend that a reasonable consumer would not believe that Natural American
cigarettes are healthier than other cigarettes based on the “Natural” and “Additive-Free” labeling,
because the labeling disclaims that their cigarettes are safer than other cigarettes. MTD at 42-46.
Regarding the Menthol Theory, the Defendants also argue that “a reasonable consumer . . . could not
have been misled into believing that [Natural American] cigarettes labeled ‘menthol’ on the package
would not contain menthol.” MTD at 46 (emphasis in original). Finally, the Defendants argue that a
reasonable consumer would not believe that the tobacco in Natural American cigarettes was
unprocessed even though Natural American cigarettes are labeled as “Natural,” because “virtually all
manufactured products undergo some form of processing.” MTD at 47-48 (emphasis in original).
- 15 -
The Defendants also assert that four of the Plaintiffs’ statutory claims fail, because the
relevant statutes do not provide relief under these circumstances. See MTD at 49. They contend
that: (i) the injunctive relief requested under the Illinois Uniform Deceptive Trade Practices Act, 815
Ill. Comp. Stat. 510, is inappropriate, because injunctive relief requires a likelihood of future harm,
and the Plaintiffs admit they will not purchase Natural American cigarettes again; (ii) the Plaintiffs’
New Jersey Truth in Consumer Contract Warranty and Notice Act, N.J. Stat. Ann. § 56:12-14
(“TCCWNA”), claim fails, because a predicate act is needed, and there can be no predicate act,
because the Defendants’ advertising would not mislead a reasonable consumer; (iii) the Ohio
Consumer Sales Practice Act, Ohio Rev. Code Ann. § 1345 (“OCSPA”), claim fails, because the
Plaintiffs do not allege that they notified the Defendants of their unlawful conduct; and (iv) the Ohio
Deceptive Trade Practices Act, Ohio Rev. Code Ann. § 1345.02, (“ODTPA”) claim fails, because
that law does not create a private right of action for consumers. See MTD at 50-52.
Fifth, the Defendants contend that the unjust-enrichment claims fail, because the Plaintiffs
have not alleged any misleading conduct. See MTD at 52. As an initial matter, the Defendants
argue that the three transferor courts’ choice-of-law approaches dictate that the laws of the twelve
states where the Plaintiffs purportedly purchased their cigarettes govern the unjust-enrichment
analysis. See MTD at 53-54. According to the Defendants, the unjust-enrichment claims fail,
because the “Plaintiffs received precisely what they paid for -- cigarettes made with additive-free,
natural tobacco -- and so there is no injustice to be remedied.” MTD at 53.
Sixth, the Defendants argue that ten of the twelve unjust-enrichment claims fail, because the
Plaintiffs have an adequate legal remedy -- a state law damages claim. See MTD at 55. The
Defendants also argue that the Michigan, New Jersey, North Carolina, and Ohio unjust-enrichment
claims fail, because the Plaintiffs do not allege that they directly purchased the Natural Americans
- 16 -
from any of the Defendants. See MTD 60-61. The Defendants also argue that the New Jersey
unjust-enrichment claim fails, because it sounds in tort, and the New York unjust-enrichment claim
fails, because it duplicates the Plaintiffs’ statutory claims. See MTD at 62-63.
Seventh, the Defendants argue that they did not breach an express warranty by selling
menthol cigarettes. See MTD at 64. They argue that, under California and New York Law, a breach
of an express warranty requires the Plaintiffs to have reasonably relied on a warranty, and the
Plaintiffs did not do so here. See MTD at 64. The Defendants also argue that the Plaintiffs’ breachof-express-warranty claims fare no better under Colorado, Florida, Illinois, New Jersey, New
Mexico, or North Carolina law, because those states require a court to read the “alleged express
warranties” in conjunction with “potentially limiting language.” MTD at 65. They argue that, thus,
the “menthol” language “necessarily modified any warranty,” such as the “Additive-Free tobacco”
warranty to mean that “the product, in fact, contains menthol.” MTD at 66.
Eighth, the Defendants argue that the express warranty claims fail under California, Florida,
Illinois, New Mexico, New York, and North Carolina law, because the Plaintiffs did not give the
Defendants notice before filing suit. See MTD at 66. The Defendants assert that Florida, Illinois,
and New York law preclude the express warranty claims, because “privity is required,” and the
Plaintiffs cannot establish privity. MTD at 67.
Ninth, the Defendants argue that the Plaintiffs’ request for injunctive relief is rendered moot.
See MTD at 68. The Defendants maintain that, because they have entered a Memorandum of
Agreement with the FDA, see Memorandum of Agreement, under which Santa Fe Tobacco will
cease using “additive-free” and “natural” going forward (except for the “Natural” in the “Natural
American Spirit” brand name), an injunction is inappropriate, because the Defendants have already
- 17 -
undertaken the action that the Plaintiffs have requested. MTD at 68-69.10 The Defendants aver that
the Plaintiffs’ requested injunction does not satisfy the mootness doctrine’s voluntary-cessation
10
The Memorandum of Agreement reads in relevant part:
[The FDA’s Center for Tobacco Products (“CTP”)] and Santa Fe [Tobacco] agree to
the following steps and conditions:
1.
Santa Fe will remove the phrase “Additive-Free” from all
Natural American Spirit cigarette product labels, labeling,
advertising, and promotional materials.
2.
Santa Fe will remove the term “natural” from all Natural
American Spirit cigarette product labels, labeling advertising,
and promotional materials, except as provided in Paragraph
Three (3) below.
....
CTP recognizes that Santa Fe will need to coordinate with its
vendors to print and implement new product labeling and
advertising. However, CTP expects that this process would be
completed and that changes to the labels, labeling, advertising,
and promotional materials would be implemented within seven
(7) months from the date Santa Fe receives in writing the
agreement reached between FTC and FDA regarding the
necessity, and, if applicable, wording of a disclosure, and the
process for effectuating it, as a result of the discussions among
Santa FE, FTC, and FDA. Following the seven (7) month
deadline, Santa Fe will not utilize the terms “additive free” or
“natural” except as allowed under Paragraph 3 of this Agreement
on the labels, labeling, advertising, or promotional materials for
Natural American Spirit cigarette products.
....
3.
Santa Fe may retain the use of the term “Natural” in the “Natural
American Spirit” brand name and trademarks.
....
If Santa Fe agrees to the conditions outlined above, CTP will commit to not initiating
enforcement action against Santa Fe related to the August 27, 2015 Warning Letter
during the Seven (7) month timeframe set forth in Paragraph 2.
- 18 -
exception,11 because, if they resumed using “Natural” or “Additive-Free,” the Defendants would
expose themselves to an FDA enforcement action. MTD at 69-70 n.26. The Defendants argue,
accordingly, that the Memorandum of Agreement renders “moot[] Plaintiffs’ requests for injunctive
relief.” MTD at 68.
Tenth, the Defendants assert that the Court lacks personal jurisdiction over Reynolds
American with respect to the five Plaintiffs’12 claims who were not parties to the North Carolina suit.
See MTD at 70. In sum, the Defendants argue that the Court lacks both specific and general
personal jurisdiction over Reynolds America. See MTD at 73. Turning first to specific personal
jurisdiction, they contend that Reynolds American has not purposefully directed its activities at any
of the transferor court states. See MTD at 74. They argue that the Plaintiffs’ allegation that
Reynolds America is “intimately involved in the marketing, advertising, and overall business
development,” Amended Complaint ¶ 27, at 12, of Natural American cigarettes is conclusory, and
that the “mere involvement in nationwide advertising” does not amount to the requisite directed
activity, MTD at 74. Turning to general personal jurisdiction, the Defendants say that general
personal jurisdiction is proper only in North Carolina, because Reynolds America has no continuous
and systematic contacts with any other state. See MTD at 75. Specifically, they contend that
Reynolds America “does not do business in any of the transferor States other than North Carolina,
does not have any registered agents in any of those States, and does not employ[] any employees in
Memorandum of Agreement ¶¶ 1-3, at 1-3.
11
Under the voluntary-cessation doctrine, a request for injunctive relief is not rendered moot
when the party voluntarily stops the challenged conduct. See Brown v. Buhman, 822 F.3d 1151,
1166 (10th Cir. 2016). Nevertheless, a defendant’s voluntary cessation may render a case moot, if
“the defendant carries the formidable burden of showing that it is absolutely clear the allegedly
wrongful behavior could not reasonably be expected to recur.” Brown v. Buhman, 822 F.3d at 1166
(quoting Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013)).
12
Those five Plaintiffs are: Sproule, Miller, Haskal, Litwin, and Blevins.
- 19 -
any of those States. . . . Nor does RAI maintain bank accounts in any of those states.” MTD at 7576. The Defendants also argue that Santa Fe Tobacco’s contacts cannot be imputed onto Reynolds
America. See MTD at 76. They contend that, to impute a subsidiary’s contact onto a parent
corporation, the parent company must control the subsidiary’s day-to-day activities, and, here, the
allegations that Reynolds America “‘exercises control over [Santa Fe’s] corporate decisionmaking’
and involves itself in Santa Fe’s business by treating it as ‘an operating segment’” are conclusory.
MTD at 77 (quoting Amended Complaint ¶¶ 34-35, at 13-14)(brackets in MTD). They add that
Reynolds American is not involved in Santa Fe Tobacco’s day-to-day operations nor is it controlling
those operations. See MTD at 78.
2.
The Response.
The Plaintiffs responded by filing the Plaintiffs’ Opposition to Defendants’ Motion to
Dismiss the Consolidated Amended Class Action Complaint and Incorporated Memorandum of
Law, filed April 6, 2017 (Doc. 98)(“Response”). First, they contend that the Consent Order does not
impliedly preempt their claim based on the Safer-Cigarette Theory, because: (i) the FTC’s governing
statute states that “remedies provided in this section are in addition to, and not in lieu of, any other
remedy or right of action provided by state or federal law,” Response at 7, (emphasis omitted)(citing
15 U.S.C. § 57b(e)); and (ii) the Supreme Court rejected the same arguments that the Defendants
bring, namely that an FTC Consent Order requiring a disclosure on a tobacco product impliedly
preempts a state deceptive practices claim, see Response at 9 (citing Altria Group, Inc. v. Good, 555
U.S. 70, 89 (2008)(“Altria II”)). The Plaintiffs also refute the Defendants’ argument that the United
States Department of Agriculture’s regulations governing entities’ use of “organic” preempts their
Safer-Cigarette Theory premised on the term “organic.” Response at 15 (citing Segedie v. Hain
Celestial Grp., Inc., No. 14-5029, 2015 WL 2168374, at *2-7 (S.D.N.Y. May 7, 2015)(Roman, J.);
- 20 -
Jones v. ConAgra Foods, Inc., 912 F. Supp. 2d 889, 894-96 (N.D. Cal. 2012)(Breyer, J.); Brown v.
Hain Celestial Grp., Inc., No. 11-3082, 2012 WL 3138013, at *6-12 (N.D. Cal. Aug. 1,
2012)(Beeler, J.)).
The Plaintiffs also aver that the First Amendment does not protect the Defendants from
liability. See Response at 16. They argue broadly that dismissing their false and misleading
marketing claims is inappropriate on a motion to dismiss as “such a determination [of falsehood] is
for the trier of fact.” Response at 16-17. The Plaintiffs also argue that the Central Hudson test does
not apply to sellers or manufacturers who lie about a product in advertising. See Response at 18
(citing Fed. Trade Comm’n v. Wellness Support Network, Inc., No. 10-4879, 2014 WL 644749, at
*10 (N.D. Cal. Feb. 19, 2014)(Spero, M.J.)). They continue, however, that, if Central Hudson
applies, they still satisfy the test. See Response at 18. They argue that, under Central Hudson’s first
prong, the Defendants’ advertising is misleading, so the Defendants’ speech “does not merit any
First Amendment protection.” Response at 19. The Plaintiffs refute the Defendants’ contention that
they must show that the Defendants’ speech is “inherently misleading,” because they challenge the
statute “as applied” to specific representations to Plaintiffs. Response at 20 (citing John Doe No. 1
v. Reed, 561 U.S. 186, 194 (2010)). The Plaintiffs also argue that, under Central Hudson, the
government has a substantial interest in protecting consumers from deceptive business practices.
See Response at 21.
The Plaintiffs next contend that no safe harbors protect the Defendants from liability. See
Response at 23. First, they argue that, in Altria II, the Supreme Court determined that “FTC consent
orders only ‘enjoin enforcement’ of 15 U.S.C. § 45 and should not be construed as authorizing any
specific conduct,” and that “agency nonenforcement of a federal statute is not the same as a policy of
approval.” Response at 23-24 (citing Altria II, 555 U.S. at 89-90). They argue that, therefore, the
- 21 -
Consent Order “simply enjoined the FTC from enforcing the FTC Act against Defendants so long as
they complied with its terms.” Response at 24. The Plaintiffs add that the Consent Order does not
provide complete immunity from suit, because they allege both false advertising and false
packaging, and the Consent Order applies only to advertising. See Response at 25-26. They also
argue, in a similar vein, that the Consent Order does not address the use of “natural” and “organic,”
so the Consent Order cannot permit the Defendants’ use of those terms. Response at 26. They
contend that the Consent Order’s catch-all “substantially similar terms” language does not capture
“natural” and “organic,” because the Consent Order does not list “those two key terms,” and the
exclusion “cannot be an oversight as the terms are literally contained in the names of the products”
and the term “natural” was included in the original FTC investigation. Response at 27.13
The Plaintiffs argue that, even if the Consent Order governed the packaging, the Consent
Order would not shield the Defendants from liability. See Response at 28. They aver that the
Defendants “buried the [required] disclaimer in small text to avoid” consumer attention, flouting the
Consent Order’s “equal text size requirement”14 in some instances -- particularly on the packaging.
13
The Consent Order reads in relevant part that:
[T]his provision shall not prohibit respondent from truthfully representing, through
the use of such phrases as “no additives,” “no chemicals,” “additive-free,”
“chemical-free,” “chemical-additive-free,” “100% tobacco,” “pure tobacco,” or
substantially similar terms, that a tobacco product has no additives or chemicals,
where such representation is accompanied by the disclosure mandated by this
provision.
Consent Order at 5 [at 14 on CM/ECF].
14
The Consent Order requires the Defendants to “display in advertisements as specified
below, clearly and prominently, the following disclosures (including the line breaks, punctuation,
bold font and capitalization illustrated:
In cigarette advertisements:
- 22 -
Response at 28. They add that the Defendants did not bold the word “not” on the packaging as the
Consent Order commands. Response at 28.
The Plaintiffs argue that the Consent Order does not trigger any state safe harbors, because it
does not permit the Defendants’ conduct; rather, the Consent Order does not prohibit it. See
Response at 30. The Plaintiffs continue that their statutory claims are meritorious, because the
Defendants’ advertising and packaging would mislead a reasonable consumer. See Response at 39.
First, they aver that, in most of the relevant jurisdictions, a statement’s capacity to deceive or
mislead is a fact question, inappropriate for a motion to dismiss. See Response at 39-42 (citing e.g.,
Williams v. Gerber Prods. Co., 552 F.3d 934, 938-39 (9th Cir. 2008); Guidance Endodontics, LLC v.
Dentsply Int’l, Inc., 708 F. Supp. 2d 1209, 1241 (D.N.M. 2010)(Browning, J.); Foster v. Chattem,
Inc., No. 14-0346, 2014 WL 3687129, at *3 (M.D. Fla. July 23, 2014)(Dalton, J.); Biffar v. Pinnacle
Foods Grp., LLC, No. 16-0873, 2016 WL 7429130, at *8 (S.D. Ill. Dec. 26, 2016)(Herndon, J.).
Second, they argue that reasonable consumers are not required to look beyond a cigarette package’s
frontal disclosures to uncover the cigarette’s safety disclaimer on the package’s side. See Response
at 42-43. The Plaintiffs continue that, for many jurisdictions, the relevant reasonable consumer test
is to analyze the marketing “as a whole” and not to zoom in on one disclaimer. Response at 48. See
Response at 46-49.
Addressing some of the Defendants’ state-specific arguments, the Plaintiffs argue that they
No additives in our tobacco
does NOT mean a safer cigarette
In advertisement for any other tobacco product:
No additives in our tobacco
does NOT mean safer.”
Consent Order at 4 [at 13 on CM/ECF] (emphasis in original).
- 23 -
are entitled to injunctive relief under Illinois law, because there is a “continuing risk to reasonable
consumers.” Response at 55. They also aver that, contrary to the Defendants’ contention, they are
not required to give pre-suit notice under Ohio law, because pre-suit notice is a procedural rule
inapplicable in federal court. See Response at 59. They continue that, even if pre-suit notice was
required, they satisfy the requirement, because their Amended Complaint provides sufficient written
notice. See Response at 60. Responding to the Defendants’ argument that the Plaintiffs do not have
standing under Ohio law to sue under ODTPA, the Plaintiffs argue that the statute’s express
language grants them standing and that courts have affirmed that position. See Response at 61
(citing Schumacher v. State Auto Mut. Ins. Co., 47 F. Supp. 3d 618, 630-32 (S.D. Ohio
2014)(Spiegel, J.); Bower v. IBM, 495 F. Supp. 2d 837, 843 (S.D. Ohio 2004)(Rice, J.)).
The Plaintiffs continue that they have properly pled their unjust-enrichment claim. See
Response at 62.15 The Plaintiffs contend that the Defendants’ argument that the Plaintiffs’ available
legal remedy bars their unjust-enrichment claim is premature under rule 8(d) at the motion-todismiss stage. See Response at 63 (citing In re Dial Complete Mktg. & Sales Practices Litig., No.
11-2263, 2013 WL 1222310, at *8 (D.N.H. March 26, 2013)(McAuliffe, J.)). They add that the
Defendants “adequate remedy at law” arguments flout the presumption that state statutes should not
be interpreted to displace common-law claims, unless there is specific legislative intent to the
contrary. Response at 63. The Plaintiffs also argue that, under the common law for ten relevant
states, their unjust-enrichment claims prevail, notwithstanding the Defendants’ arguments to the
contrary, because: (i) they request equitable relief distinct from a legal remedy; (ii) there was no
express contract; (iii) statutory relief’s availability does not bar equitable relief; or (iv) dismissal at
15
The Plaintiffs agree with the Defendants that the substantive law of the state in which the
cigarettes are purchased governs the unjust-enrichment claims. See Response at 62. The Court
concludes that both parties are correct and applies the law of the forum in which the cigarettes were
purchased.
- 24 -
the motion to dismiss stage is premature. See Response at 63-68. They argue that they have alleged
a direct benefit to the Defendants, sufficient to satisfy the unjust-enrichment standard in Michigan,
North Carolina, New Jersey, and Ohio, “in the form of a price premium, increased sales and
increased market share.” Response at 69. The Plaintiffs add that, contrary to the Defendants’
argument that the Plaintiffs unjust-enrichment allegation fails in New Jersey because it sounds in
tort, New Jersey law has no such requirement and that, regardless, their claim is viable, “because it
could properly be construed as an equitable remedy” under rule 8(a)(3). Response at 70.
The Plaintiffs also aver that they properly pled their breach-of-express-warranty claims. See
Response at 72. They contend that product labels create “actionable express warranties,” that the
Defendants breached an express warranty by adding menthol to their “additive-free” cigarettes, and,
alternatively, that dismissal is premature. Response at 72. They also say that the Defendants had
adequate pre-litigation notice of the breach-of-express-warranty claims, because their Amended
Complaint put the Defendants on notice, the Defendants “have not been prejudiced, and they had an
opportunity to cure the defect -- they knew that their claims that their menthol cigarettes are ‘100%
Additive Free’ are false.” Response at 73 (citing Amended Complaint ¶ 68, at 30). The Plaintiffs
add that, even if they did not meet the pre-suit notice requirement, they meet several state law
exceptions to the notice requirement. See Response at 74. They argue that: (i) under New York law,
no notice is required for suits involving goods that people consume; (ii) under California law, the
notice requirement is inapplicable against manufacturers with whom consumers have not dealt; and
(iii) under North Carolina and Illinois law, filing a lawsuit meets the notice requirement. See
Response at 74-75.
The Plaintiffs argue that the Memorandum of Agreement does not render moot their
injunctive relief request, because the Memorandum of Agreement exists outside the Amended
- 25 -
Complaint’s four corners. See Response at 76. They also contend that the Memorandum of
Agreement does not cover the Plaintiffs’ request that the term natural be removed from their
packaging and labeling, so injunctive relief cannot be rendered moot. See Response at 76.
Finally, the Plaintiffs contend that the Court has personal jurisdiction over Reynolds
American. See Response at 77. They argue that Reynolds American has substantial involvement in
the activities giving rise to their claims. See Response at 78. They contend that: (i) Reynolds
American has an integrated system where executives amongst the three Defendants collaborated;
(ii) Reynolds American essentially controls Santa Fe Tobacco’s operations, and the two entities
share assets and board members; (iii) Santa Fe Tobacco’s employees are considered Reynolds
American employees; and (iv) Reynolds American is involved in and controls Santa Fe Tobacco’s
advertising campaign. See Response at 78 (citing Amended Complaint ¶¶ 29, 35-36, at 13-14).
They conclude that, because of Reynolds American’s active participation in its subsidiaries, the
Court has “specific personal jurisdiction over [the] parent company” -- Reynolds American.
Response at 79.
3.
The Reply.
On May 30, 2017, the Defendants replied to the Plaintiffs’ Response. See Defendants’ Reply
in Support of Motion to Dismiss the Consolidated Amended Complaint at 1, filed May 30, 2017
(Doc. 107)(“Reply”). The Defendants maintain that the Consent Order preempts the Plaintiffs’
Safer-Cigarette Theory, because the Consent Order “authorizes the exact representations at issue
here by this exact manufacturer.” Reply at 2 (emphasis in original). They refute that Altria II
undermines their argument, because, the Consent Order in this case, unlike the Consent Order in
Altria II, “affirmatively permits” the terms at issue by stating that it will not prohibit terms such as
natural or additive-free. Reply at 4. They also contend that, in Altria II, the United States of
- 26 -
America expressly disavowed any policy authorizing the terms at issue in an amicus brief. See
Reply at 5 (citing Brief for the United States as Amicus Curiae Supporting Respondents at 15,
No. 07-562, 555 U.S. 70, available at https://goo.gl/6VvJzA). The Defendants also refute that 15
U.S.C. § 57b(e) undercuts their preemption argument, because that statute applies only to FTC rules
or an FTC cease-and-desist order and not to Consent Orders under 15 U.S.C. § 45(b). See Reply at
6. The Defendants also state that the Plaintiffs never pled an “organic-based” deception claim, but if
they had pled one, such a theory would fail, because the Defendants have complied with regulations
under the Organic Food Production Act, 7 U.S.C. § 6501(2), which allow advertising and labeling to
have the term organic -- subject to certain conditions. Reply at 9 (citing 7 U.S.C. § 6501(2)).
Turning to their First Amendment arguments, the Defendants maintain their previous
arguments, see Reply at 10-13, and contend that the Plaintiffs’ argument that Central Hudson does
not apply to false or misleading advertising is flawed, because the Defendants found only one
unpublished decision supporting that argument and that decision does not explain why the First
Amendment protects commercial speech limitations imposed via government regulation, but leaves
exposed the same speech via a lawsuit, see Reply at 11 n.7. The Defendants also argue that the
Plaintiffs address only one of Central Hudson’s factors. See Reply at 13. They continue that the
Plaintiffs’ argument as to that one factor is flawed, because the Defendants’ speech is not deceptive.
See Reply at 13.
The Defendants’ reassert their arguments that state safe harbors shield them from liability,
because the Consent Order permits their conduct. See Reply at 14. The Defendants also argue that
the term “natural” falls within the Consent Order’s purview, because an FTC letter confirms that
“natural” is substantially similar to “additive free.” Reply at 15 (citing MTD at 8). The Defendants
also assert that, contrary to the Plaintiffs’ position, the Court can conclude, on a rule 12(b)(6)
- 27 -
motion, whether a reasonable consumer would be misled. See Reply at 20 (citing Fink v. Time
Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013)(per curiam)). They continue that the packaging
would not mislead a reasonable consumer, because the terms “natural” and “additive-free” do not, on
their face, contradict the package’s safety disclosure. Reply at 22. The Defendants also maintain
that Santa Fe Tobacco manufactures cigarettes with additive-free tobacco and contends that the
Plaintiffs’ arguments that the “additive free” label is misleading, because menthol migrates into the
tobacco post-production is incorrect as a matter of law, because the Plaintiffs concede that menthol
“migration is inevitable.” Reply at 23 (emphasis in original)(citing Response at 52). Responding to
state-specific refutations, the Defendants counter that pre-suit notice requirements are substantive
law under Erie R. Co. v. Tomkins, 304 U.S. 64 (1938), so Ohio pre-suit notice law binds the Court
here. See Reply at 25 (citing Curry v. High Springs Family Practice Clinic & Diagnosis Ctr. Inc.,
No. 8-0008, 2008 WL 5157683, at *9 (N.D. Fla. Dec. 9, 2008)(Paul, J.)) They also contend that
filing a complaint does not satisfy the notice requirement. See Reply at 25.
Turning to the Plaintiffs’ unjust-enrichment claims, the Defendants argue that the Plaintiffs
may not plead an unjust-enrichment claim in the alternative to a legal claim. See Reply at 27. First,
the Defendants contend that the Plaintiffs’ reliance on express-contract cases where the contract’s
existence was at issue doom their unjust-enrichment-in-the-alternative theory, because those cases
do not speak to available statutory remedies. See Reply at 27. Second, the Defendants aver that
courts have rejected unjust-enrichment-in-the-alternative theories in similar circumstances. See
Reply at 28 (citing In re Ford Tailgate Litig., No. 11-2953, 2014 WL 1007066, at *5 (N.D. Cal.
March 12, 2014)(Seeborg, J.)).
The Defendants also contend that the Plaintiffs failed to give the requisite pre-suit notice for
their breach-of-express-warranty claims. See Reply at 34. Regarding state specific statutes, the
- 28 -
Defendants argue that general knowledge of general facts giving rise to the lawsuit are insufficient
under Illinois law to provide notice. See Reply at 35. They also contend that the exceptions to
notice that the Plaintiffs invoke under Illinois, North Carolina, and New York Law are inapplicable,
because those exceptions apply only in personal injury cases. See Reply at 35. The Defendants
argue that, similarly, California’s exception applies only to tort cases and not to contract cases. See
Reply at 36.
Regarding the Plaintiffs’ requested injunctive relief, the Defendants note that they have not
finalized changes to their label. See Reply at 37-38. The Defendants argue, however, that the
requested relief is still rendered moot, because the label changes will occur by December, 2017,
“long before this case reaches judgment.” Reply at 38. See Reply at 37-38. Regarding the
voluntary-cessation doctrine, the Defendants argue that the Plaintiffs have pointed to no supportable
reason to suggest that the Defendants would resume their prior labeling in the future. See Reply at
38. From that premise, the Defendants conclude that the voluntary cessation doctrine is inapplicable.
See Reply at 38.
Finally, the Defendants argue that the Plaintiffs conceded that the Court does not have
general personal jurisdiction over Reynolds American. See Reply at 39. They also argue that the
Plaintiffs’ allegations do not rise to the level needed for specific jurisdiction, because they do not
plausibly support that Reynolds American benefitted from some purposive conduct directed at the
forum state sufficient to establish consent to the forum’s jurisdiction. See Reply at 39. They also
argue that the Plaintiffs’ cannot impute Santa Fe Tobacco’s contacts onto Reynolds American,
because Reynolds American does not have control or de facto dominance over Santa Fe Tobacco.
See Reply at 39-40. The Defendants argue that there is no exception to the normal jurisdictional
rules for tobacco companies. See Reply at 40. They conclude that, therefore, the Court does not
- 29 -
have personal jurisdiction over Reynolds American. See Reply at 40.
4.
The June 9, 2017 Hearing.
The Court held a hearing on June 9, 2017. See Transcript of Motion Proceedings (taken June
9, 2017), filed June 16, 2017 (“June Tr.”). Taking each argument in turn, the Defendants began by
arguing that FTC Consent Orders, even in light of Altria II, still have preemptive effect. See June
Tr. at 15:11-17 (Biersteker). The Defendants maintain, as they argued in their Reply, that Altria II
applies only to the consent order at issue in Altria II and not to consent orders generally. See June
Tr. at 15:24-16:5 (Biersteker). Responding to the Court’s observation that “the Supreme Court is so
divided on preemption these days,” June Tr. at 16:18-19 (Court), the Defendants noted that the
Supreme Court focused on only the FTC cease and desist order at issue in Altria II, and did not
“enunciate some sort of blanket rule that consent decrees cannot be afforded preemptive effect,”
June Tr. at 16:25-17:1 (Biersteker). See June Tr. at 16:22-18:11 (Biersteker). The Defendants also
argued that, in contrast to the Altria II consent order, the parties have abided by the Consent Order at
issue here, the FTC has not questioned the Consent Order’s mandated disclosure, and the Consent
Order here, unlike Altria II’s consent order, has language permitting the advertising language. See
June Tr. at 18:12-18 (Biersteker); id. at 19:17-20:19 (Biersteker). The Court pressed that Consent
Orders change based on different administrations, and it queried how a federal judge could choose,
in a principled manner, which Consent Orders preempted state law and which did not. See June Tr.
22:22-23:10 (Court); id. at 23:16-23 (Court). The Defendants responded that, because federal
regulatory action is generally given preemptive effect, the principled response would be to scrutinize
Consent Orders on a case-by-case basis to determine whether the regulatory agency has considered
the conduct at issue. See June Tr. at 24:4-12 (Biersteker).
The Plaintiffs responded that caselaw clearly signals that the Consent Order does not preempt
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their claims. See June Tr. at 25:2-26:6 (Reese)(citing Pueblo of Pojoaque v. New Mexico, 214
F. Supp. 3d 1028 (D.N.M. 2016)(Browning, J.)). They further averred that the Consent Order does
not apply to the Defendants’ cigarette labeling, because the Consent Order’s text does not mention
labeling, and the FTC’s regulatory structure forbade them from regulating labeling when the Consent
Order was entered. See June Tr. at 29:1-7 (Reese). The Plaintiffs also pressed their argument from
briefing that 15 U.S.C. § 57b(e) precludes consent decrees from barring other litigation. See June
Tr. at 31:20-32:13 (Reese).
The Defendants responded that the Plaintiffs’ statutory interpretation is flawed, because a
different section governs FTC consent decrees. See June Tr. at 33:10-13 (Biersteker). The
Defendants continued that, although the United States Court of Appeals for the First Circuit, in Good
v. Altria, 501 F.3d 29 (1st Cir. 2007), adopted reasoning similar to the Plaintiffs’ reasoning here, the
Supreme Court did not adopt that reasoning in Altria II, so the Court should disregard the First
Circuit’s reasoning. See June Tr. at 34:14-23 (Biersteker). The Defendants added that the First
Circuit’s reasoning -- and the Plaintiffs’ -- is flawed, because it ignores the statutory text. See June
Tr. at 33:24-34-9 (Biersteker). The Defendants also argued that a reasonable consumer would know
to look at the side of a cigarette pack for warnings given that the Surgeon General’s warning on the
side of a pack is adequate under the Federal Cigarette Labeling and Advertising Act, 15
U.S.C. §§ 1331-1341 (“FCLAA”). See June Tr. at 35:11-24 (Biersteker); 15 U.S.C. § 1331.
Turning full-force to the reasonable consumer arguments, the Defendants contended that the
Court can consider whether the contested advertising language is deceptive or misleading as a matter
of law under rule 12(b)(6), and the Court agreed. See June Tr. at 39:4-9 (Court, Schultz). The
Defendants maintained their position from their briefing that no reasonable consumer would believe
that additive-free menthol cigarettes would not contain menthol. See June Tr. at 40:19-23 (Schultz).
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The Court responded with an analogy and asked whether a reasonable consumer would be deceived
if Coca-Cola bottle’s front labeling stated that there was no sugar in the product, but the back
labeling stated there was sugar. See June Tr. at 42:5-15 (Court). The Defendants replied that the
important difference between its case and the Court’s analogy is the particular wording on Natural
American’s labeling; they averred that the language “menthol-flavored” and “the ingredients are
organic tobacco and menthol” would alert “a consumer who chooses a menthol cigarette.” June Tr.
at 42:16-25 (Schultz). The Defendants again stressed that the one-hundred-percent additive-free
tobacco labeling is true, because the menthol is “part of the cigarette,” but “not part of the tobacco,”
June Tr. at 43:15-16 (Schultz), yet conceded that, when the cigarette is smoked, inevitably the
menthol “is part of and touches the tobacco,” id. at 43:19-23 (Court, Schultz). See June Tr. at 43:6-8
(Schultz).
The Plaintiffs responded that there is a body of caselaw ruling that a reasonable consumer is
not required to turn around a label to verify whether a representation on the front is truthful. See
June Tr. at 51:25-52:7 (Wolchansky). The Plaintiffs also argued that consumers may not know
much about menthol. See June Tr. at 79:18-24 (Wolchansky). The Plaintiffs added that, even if the
Court accepts the Defendants’ argument that tobacco is separate from the menthol while the cigarette
remains unsmoked, it is still disingenuous to suggest that the tobacco is additive-free when, “the
minute that you light that cigarette,” the menthol, the chemicals, and “everything in that cigarette
goes into your mouth and into your lungs.” June Tr. at 53:18-54:4 (Wolchansky). The Plaintiffs
explained that menthol is an “organic molecule . . . derived from mint,” although it “it can [also] be
synthesized chemically in a lab,” June Tr. at 64:13-16 (Schlesinger), it “acts as an anesthetic,” id. at
56:18 (Schlesinger), “numbs the throat,” id. at 56:23-24 (Schlesinger), and makes the smoke
“inhalable,” id. at 57:4 (Schlesinger). See June Tr. at 56:15-57:9 (Schlesinger). The Plaintiffs also
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argued that the Honorable Judge Gladys Kessler of the United States District Court for the District of
Columbia already determined that Natural American’s use of “the term ‘natural’ is unlawful,”
because it suggests that it “confer[s] health benefits,” and the Plaintiffs ask the Court to “enforce her
order.” June Tr. at 58:8-21 (Schlesinger). See United States v. Philip Morris USA, Inc., 449
F. Supp. 2d 1 (D.D.C. 2006)(Kessler, J.).
The Plaintiffs argued that the natural, additive-free, and organic advertising misleads
consumers into believing Natural Americans are safer or healthier. See June Tr. at 65:19-24
(Wolchansky). They contended that the disclaimer “does not mean that the front of the pack isn’t
misleading,” June Tr. at 67:5-6 (Wolchansky), because the disclaimer is “buried,” id. at 67:25
(Wolchansky), as “tiny text on the side of the pack,” id. at 67:22-23 (Wolchansky), underneath the
barcode and is phrased in a double negative, see June Tr. at 67:18-68:15 (Wolchansky). The
Plaintiffs added that the FDA’s Warning Letter16 buttresses their position, because it tells the
16
The Warning Letter reads, in pertinent part:
Your product labeling for Natural American Spirit cigarettes, which uses the
descriptors “Natural” and “Additive Free,” represents explicitly and/or implicitly that
the products or their smoke do not contain or are free of a substance and/or that the
products present a lower risk of tobacco related disease or are less harmful than one
or more other commercially marketed tobacco products. As such, these products are
modified risk tobacco products. As such, these products are modified risk tobacco
products. Because these products are sold or distributed to customers in the United
States without an appropriate FDA order in effect under section 911(g) of the FD&C
Act (21 U.S.C. § 387k(g)), these products are adulterated under section 902(8) of the
FD&C Act (21 U.S.C. § 387b(8))
....
The violations discussed in this letter do not necessarily constitute an exhaustive list.
You should immediately correct the violations that are referenced above, as well as
violations that are the same as or similar to those stated above, and take any
necessary actions to bring your tobacco products into compliance with the FD&C
Act.
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Defendants that “Natural and Additive-free represents explicitly and/or implicitly that the products
or their smoke do not contain or are free from a substance and/or that the products present a lower
risk of tobacco-related disease or are less harmful.” June Tr. at 69:3-14 (Wolchansky)(quoting
Warning Letter at 2). The Plaintiffs continued that, in addition to the Warning Letter, peer-reviewed
articles conclude that consumers believe that Natural American cigarettes are healthier based on the
terms natural, organic, and additive-free. See June Tr. at 70:19-22 (Wolchansky); id. at 72:23-73:4
(Wolchansky). See also June Tr. at 74:17-23 (Wolchansky)(noting that 63.9 percent of Natural
American smokers think that Natural American cigarettes are less harmful than other brands); id. at
76:14-20 (Wolchansky)(noting that sixty percent of consumers believe that removing additives from
cigarettes make them less dangerous to smoke). The Plaintiffs argued that the caselaw the
Defendants cite is inapposite, because, in those cases, the disclaimer is prominent, unlike Natural
American’s disclaimer. See June Tr. at 82:6-19 (Wolchansky).
Returning to the Menthol Theory, the Court, again emphasized its concerns that the onehundred-percent additive-free labeling misleads consumers. See June Tr. at 87:5-6 (Court). It also
posited that the “100% Additive-Free” and “Natural Tobacco” labeling is not on one line, but two
lines, and that the Plaintiffs might argue that the labeling conveys two separate messages. June Tr.
at 87:12-22 (Court). The Defendants disagreed and argued that the labeling conveys one message.
See June Tr. at 87:23-88:1 (Schultz). The Court also noted that the package’s disclaimer focuses
only on the advertising’s additive term “and doesn’t really address the issue about the natural” term.
June Tr. at 89:23-24 (Court). See June Tr. at 89:9-24 (Court). It further noted that the advertising
disclaimers diverge from the packaging disclaimers. See June Tr. at 91:2-10 (Court).
The
Defendants rejoined that the FTC Consent Order does not require a packaging disclaimer, so, by
Warning Letter at 2-3.
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inserting any disclaimer at all, they went beyond FTC’s requirements. See June Tr. at 91:23-92:3
(Schultz). The Defendants added that the Amended Complaint does not address the FTC disclaimer,
and argued that a reasonable consumer looks at both the advertising labels and the disclaimer. See
June Tr. at 92:13-93:3 (Schultz). They also argued that the disclaimer does not contradict the natural
or additive-free language, but “helps to amplify the meaning.” June Tr. at 94:4-9 (Schultz). They
continued that “natural” is a word with no meaning under the reasonable consumer standard, because
“it can have different meanings in different contexts,” so it cannot have a “safer cigarette” meaning
that the Plaintiffs ascribe to it. June Tr. at 96:1-9 (Schultz).
The Court disagreed and thought that natural had some meaning, otherwise corporations
would not use it on products, but it was not convinced that the natural term necessarily signals to a
reasonable consumer that the cigarettes are safer. See June Tr. at 100:19-101:5. The Plaintiffs
argued that, even if natural does not have a precise and fixed meaning, it still suggests to a
reasonable consumer that Natural American cigarettes are not produced through human alteration or
engineering. See June Tr. at 102:16-20 (Schlesinger). The Plaintiffs persisted that the natural
labeling conveys a message that the Defendants wrap up the tobacco from the plants and sell the
product as-is, and that additives associated with tobacco products “are gone” from Natural American
cigarettes. See June Tr. at 102:21-103:10 (Schlesinger). The Court responded that natural’s
meaning might turn on the product sold; for example, a natural marshmallow might be different from
a natural orange. See June Tr. at 123:15-25 (Court). The Plaintiffs rejoined that the “natural here
means safer and healthier, and it also means that it is manufactured in a way that is natural,” but “the
truth is, it’s not.” June Tr. at 124:1-4 (Wolchansky). The Plaintiffs conceded that a reasonable
consumer does not think that natural means that the cigarettes are hand rolled, see June Tr. at
124:16-17 (Wolchansky), but argued that whether flue curing the cigarettes or packing the cigarettes
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with nicotine is a “natural” processes “is a question of fact for a jury,” June Tr. at 124:19-20
(Wolchansky).
The Plaintiffs explained that, in its natural state, tobacco or cigarettes are
uninhalable; it is only when the cigarettes are flue cured that cigarettes become inhalable. See June
Tr. at 128:8-20 (Schlesinger). The Plaintiffs acknowledged that there is no defined meaning for
what a natural manufacturing process is, but emphasized that no reasonable consumer believes that
flue curing and the other processes, which the Defendants use to make their cigarettes, are natural.
See June Tr. at 126:14-25 (Wolchansky). The Court concluded that it was inclined to let the
Menthol Theory proceed, but to dismiss the other two theories. See June Tr. at 133:10-21 (Court).
Turning to the common-law claims, the Defendants argued that rule 8(b) does not allow the
Plaintiffs to plead unjust enrichment in the alternative, because a federal rule of civil procedure
cannot alter state substantive law. See June Tr. at 144:14-18 (Biersteker). They explained that
equity fills in the gaps that legal remedies leave, and that, because the Plaintiffs have an available
legal remedy from the state statutes, unjust enrichment is improperly pled. See June Tr. at 145:8-21
(Biersteker). The Defendants concluded that there is no dispute that legal statutory remedies exist.
See June Tr. at 146:7-8 (Biersteker).
5.
The Supplemental Brief.
On June 30, 2017, the Plaintiffs filed a supplemental brief addressing several issues raised
during the June Hearing. See Plaintiffs’ Supplemental Brief in Opposition to Defendants’ Motion to
Dismiss and Consolidated Amended Class Action Complaint and Incorporated Memorandum of Law
at 1, filed June 30, 2017 (Doc. 117)(“Supp. Brief”). They assert three arguments: (i) whether a
reasonable consumer is misled is typically a fact question that survives a motion to dismiss; (ii) the
Defendants’ disclaimer arguments are misplaced; and (iii) they have adequately pled their complaint
to survive the rule 12(b)(6) standard. See Supp. Brief at 1-4. First, they assert that the Court’s
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function is not to weigh the evidence, but to assess whether the Plaintiffs have plausibly stated a
claim. See Supp. Brief. at 4 (citing Walker v. THI of N.M. at Hobbs Ctr., 803 F. Supp. 2d 1287,
1330 (D.N.M. 2011)(Browning, J.)). They also aver that “the unanimous weight of case law
authority holds that use of terms ‘natural,’ ‘organic,’ or ‘additive-free’ do mislead consumers into
believing that cigarettes so labeled are safer or healthier.” Supp. Brief at 5 (citing Disc. Tobacco &
Lottery, Inc. v. United States, 674 F.3d 509, 536 (6th Cir. 2012); United States v. Phillip Morris
USA, Inc., 449 F. Supp. 2d 1, 27 (D.D.C. 2006)(Kessler, J.); United States v. Philip, 477 F. Supp. 2d
191, 197-98 (D.D.C. 2007)(Kessler, J.); Hunter v. Philip Morris USA Inc., 364 P.3d 439 (Alaska
2015)).
Second, the Plaintiffs argue that consumers are misled notwithstanding the disclaimer. See
Supp. Brief at 11 (citing Amended Complaint ¶ 52, at 25). They contend that, under longstanding
false advertising law, representations must be viewed in the context of the packaging or advertising
as a whole, see Supp. Brief. at 11 (citing Penrod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d
241, 250 (4th Cir. 2011)), and “how consumers view these claims . . . as a whole . . . are questions of
fact not appropriate for resolution at this stage,” Supp. Brief at 11. They also argue that the
disclaimer is so obscured on the package that it ineffectively warns a reasonable consumer. See
Supp. Brief. at 12. Finally, they argue that a reasonable consumer is “impervious to health warnings
and disclaimers,” because Natural American smokers had “certainly seen and ignored health
disclaimers on the packs of other brands” before switching, so the Court “should give little, if any,
weight” to the disclaimers in deciding the Motion to Dismiss. Supp. Brief at 13.
Third, the Plaintiffs clarify that they do not argue that natural is misleading “simply because
manufacturing steps must be taken to put their tobacco in cigarette form”; rather, they argue that the
Defendants manufacturing processes do not conform to a reasonable consumers’ understanding of
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the natural term. Supp. Brief at 13. They maintain that the term natural is misleading, because
Natural Americans undergo flue-curing processing, artificial blending, and engineering to boost
nicotine. See Supp. Brief at 14 (citing Amended Complaint ¶¶ 63-66, 72-73, at 30, 32-33). They
conclude, thus, that it is plausible that a reasonable consumer would believe that Natural American
cigarettes were less chemically enhanced and less nicotine-laced than other cigarettes. See Supp.
Brief at 14.
6.
The Supplemental Response.
The Defendants responded to the Supp. Brief on July 14, 2017. See Defendants’ Response to
Plaintiffs’ Supplemental Brief at 1, filed July 14, 2017 (Doc. 124)(“Supp. Resp.”). The Defendants
argue that the Court can, and must, rule on the reasonable consumer arguments on a Motion to
Dismiss. See Supp. Resp. at 2-3 (citing Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir.
2013)(per curiam)(ruling that it is “well settled that a court may determine as a matter of law that an
allegedly deceptive advertisement would not have misled a reasonable consumer”)). The Defendants
also state that the administrative and academic findings on the Defendants’ advertising do not bind
the Court on a motion to dismiss, and many of their findings are inapposite, because the reports did
not consider the warning disclosure or are not final determinations. See Supp. Resp. at 6-7. The
Defendants also argue that the Court can disregard survey data as immaterial where a reasonable
consumer would acknowledge that the advertising is not false or misleading. See Supp. Resp. at 8.
The Defendants aver that their disclaimer still wards against the Plaintiffs’ deceptive arguments as to
the natural term, even though the disclaimer does not mention natural, because the disclaimer makes
clear that the cigarettes are not safer than any other cigarette. See Supp. Resp. at 10. The
Defendants conclude that the Plaintiffs’ Amended Complaint does not support the refined processing
theory that the Plaintiffs assert in their Supp. Brief. See Supp. Resp. at 11.
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7.
The July Hearing.
The Court held a hearing on July 20, 2017. See Transcript of Motion Proceedings (taken
July 20, 2017), filed August 10, 2017 (Doc. 126)(“July Tr.”). The Defendants argued that, as to four
states’ laws, the Plaintiffs’ unjust-enrichment claims fail, because the Plaintiffs do not properly
allege that the advertising conveys a direct benefit to the Defendants. See July Tr. at 35:6-17
(Biersteker). They add that unjust enrichment is a “gap filler,” and it is likely that those four states’
laws narrow the unjust-enrichment remedy, “because numerous legal remedies already exist for
consumers who have suffered as a result of deceptive advertising.” July Tr. at 11-17 (Biersteker).
The Plaintiffs rejoined that, as to Michigan, the direct benefit element is no longer required. See
July Tr. at 37:10-18 (Wolchansky)(citing In re Automotive Parts Antitrust Litig., 29 F. Supp. 3d 982,
1021 (E.D. Mich. 2014)(Battani, J.)). They also countered that there are cases from the other three
states that similarly obviate the direct-benefit requirement.
See July Tr. at 38:11-40:1
(Wolchansky)(citing Stewart v. Beam Global Spirits & Wine, Inc., 877 F. Supp. 2d 192 (D.N.J.
2012)(Hillman, J.); Paika v. General Motors Corp., No. 07-0892, 2009 WL 275761 (E.D. Cal. Feb.
5, 2009)(Darmell, J.)).
Regarding the pre-suit notice requirement for the express warranty claims, the Defendants
admitted that the Amended Complaint alleges that the Plaintiffs performed “all conditions precedent
to defendants’ liability,” July Tr. at 41:3-6 (Biersteker)(quoting Amended Complaint ¶ 456, at 104),
but the Defendants contended that the Amended Complaint’s allegation is “legally insufficient,”
July Tr. at 41:13-14 (Biersteker). The Defendants added that filing the Amended Complaint is
insufficient for pre-suit notice in Illinois, North Carolina, and New York. See July Tr. at 43:11-14
(Biersteker). They argue that the Plaintiffs’ cases to the contrary are personal injury cases, so are
inapplicable here. See July Tr. at 43:14-15 (Biersteker); id. at 44:12-18 (Biersteker). The Plaintiffs
- 39 -
countered that their Amended Complaint serves as pre-suit notice as do the FDA and FTC letters on
these issues, see July Tr. at 48:12-13 (Wolchansky), and that “there is unquestionably knowledge
here,” July Tr. at 49:25-50:1 (Wolchansky).
Turning to the privity requirement, the Defendants admitted that three states grant an
exception to the privity requirement, see July Tr. at 45:14-15 (Biersteker), but the Defendants
averred that courts routinely dismiss express warranty claims “based on product packaging and
labels,” which involve economic loss, as here, July Tr. at 45:15-18 (Biersteker). The Plaintiffs
rejoined that recent federal Florida cases have denied motions to dismiss for breaches of express
warranties on similar facts. See July Tr. at 50:2-52:4 (Wolchansky)(citing Hill v. Hoover, 899
F. Supp. 2d 1259 (N.D. Fla. 2012)(Mickle, J.); Smith v. Wm. Wrigley Jr. Co., 663 F. Supp. 2d 1336
(S.D. Fla. 2009)(Cohn, J.); Garcia v. Kashi, 43 F. Supp. 3d 1359 (S.D. Fla. 2014)(Leonard, J.)). The
Plaintiffs continued that other courts provide similar authority for their position. See July Tr. at
52:11-53:23 (Wolchansky)(citing Mednick v. Precor, Inc., No. 14-4231, 2014 WL 6474915 (N.D.
Ill Nov. 13, 2014)(Leinenweber, J.); Baldwin v. Star Scientific, Inc., 78 F. Supp. 3d 724 (N.D. Ill.
2015)(Pallmeyer, J.); Mahoney v. Endo Health Solutions, Inc., No. 15-9841, 2016 U.S. Dist. LEXIS
94732 (S.D.N.Y. July 20, 2016)(Cote, J.)).
Turning to the injunctive relief requested, the Defendants conceded that the Memorandum of
Agreement does not cover their use of “natural” in Natural American’s brand name, so the requested
injunctive relief, as to that specific use of natural, is not rendered moot. July Tr. at 55:4-56:24
(Biersteker). The Plaintiffs also argued that the Memorandum of Agreement is not a “final
document,” so it does not render moot their request for injunctive relief. July Tr. at 59:20-21
(Wolchansky). They continued that the FDA was recently sued over Santa Fe Tobacco’s use of
natural, and that litigation places the Memorandum of Agreement in jeopardy. See July Tr. at 60:3-
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13 (Wolchansky); id. at 60:16-20 (Wolchansky); id. at 60:24-61:4 (Wolchansky). The Defendants
rejoined that the Memorandum of Agreement “is final,” July Tr. at 62:23-24 (Biersteker), but
conceded that, if the pending lawsuit against the FDA is successful, “it would vacate the
memorandum,” July Tr. at 64:3-4 (Biersteker). They also asserted, however, that the Defendants
will not “risk alienating the FDA” by contravening the Memorandum of Agreement. July Tr. at
66:6-11 (Biersteker).
The Court asked the Defendants whether, in light of the Plaintiffs’ supplemental
argumentation that, based on studies that terms, such as natural, mislead many consumers, it should
reconsider its earlier inclination that the Plaintiffs’ safer-cigarette theory is flawed. See July Tr. at
67:2-16 (Court); id. at 27:25-68:8 (Court). The Defendants countered that the studies, which the
Plaintiffs present, do not stand for the proposition that the Plaintiffs suggest that they support. See
July Tr. at 68:13-19 (Schultz). The Plaintiffs rejoined that, although they cite only one study in their
Amended Complaint, there are numerous studies supporting their position and that they will file
those studies with the Court. See July Tr. at 74:7-16 (Wolchansky).
8.
Continued Oral Argument.
On July 21, 2017, the Plaintiffs filed a Notice of Filing Hearing Exhibit, filed July 21, 2017
(Doc.125), which includes their Continued Oral Argument on Defendants’ Motion to Dismiss, see
Continued Oral Argument on Defendant’s Motion to Dismiss, filed July 21, 2017 (Doc. 1251)(“Cont. Arg.”). The Plaintiffs argue that a 2016 study supports their argument that Natural
American cigarettes’ disclaimers ineffectively warn consumers. See Cont. Arg. at 3 (citing
Misperceptions, at 1-4). The Plaintiffs explain that the study concludes that many Natural American
cigarette smokers believe that Natural American cigarettes are less harmful than other cigarettes,
and, thus, the disclaimer ineffectively corrects consumers’ perceptions. See Cont. Arg. at 3-4
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(noting that 63.9 percent of Natural American cigarette smokers believe their brand is less harmful).
The Plaintiffs also cite a 2007 study for the proposition that “consumers frequently conclude
‘natural’ cigarettes must be healthier, and tobacco companies have understood this for decades.”
Cont. Arg. at 4 (citing Patricia McDaniel & Ruth E. Malone, I Always Thought they were all Pure
Tobacco: American Smokers’ Perceptions of “Natural” Cigarettes and Tobacco Industry Advertising
Strategies,
16
Tobacco
Control
http://www.ncbi.nlm.gov/pmc/articles/PMC2807204/).
e7
(2007),
available
at
They continue that a 2004 survey
demonstrates that sixty percent of smokers think that removing additives makes cigarettes safer. See
Cont. Arg. at 5 (citing K.M. Cummings, Are Smokers Adequately Informed About the Health Risks
of Smoking and Medicinal Nicotine?, Nicotine & Tobacco Research 6(3): S333-340 (2004)). They
also aver that Reynolds American market research confirms that consumers believe that the additivefree descriptor conveys a safer or healthier message, and that a 2016 study reveals that the “100%
Additive Free” descriptor communicates lower health risks to consumers. Cont. Arg. at 5. The
Plaintiffs argue that, despite the healthier message that consumers perceive from Natural American’s
natural and additive-free descriptors, studies show that Natural American cigarettes have higher ash
and heavy-metal levels than other cigarettes. See Cont. Arg. at 6.
The Plaintiffs also argue that several cases, not previously cited, support their position. See
Cont. Arg. at 3, 10-19. For example, the Plaintiffs cite to Discount Tobacco City & Lottery, Inc.,
674 F.3d 509 (6th Cir. 2012), for the proposition that “naturalists prefer” products with organic and
natural labeling, “because they believe the product confer health advantages.” Cont. Arg. at 3 (citing
Discount Tobacco City & Lottery, Inc., 674 F.3d at 536). They also argue that the United States
Court of Appeals for the Seventh Circuit has ruled that a literal falsehood is not required for liability
to attach. See Cont. Arg. at 10 (citing Suchanek v. Sturm Foods, Inc., 764 F.3d 750, 761 (7th Cir.
- 42 -
2014)(“[The district court] appears to assume that a package cannot be misleading if it does not
contain literal falsehoods. But that is not the law.”)(alterations in original)). The Plaintiffs also
argue that four federal district courts have determined that a natural descriptor misleads a reasonable
consumer. See Cont. Arg. at 12-19 (citing Martin v. Tradewinds Beverage Co., No. 16-9249, 2017
U.S. Dist. LEXIS 72698 (C.D. Cal. Apr. 27, 2017)(Gutierrez, J.); In re Frito-Lay N. Am., Inc., No.
12-2413, 2013 WL 4647512 (E.D.N.Y. Aug. 29, 2013)(Mauskopf, J.); Burton v. Hodgson Mill, Inc.,
No. 16-1081, 2017 WL 1282882 (S.D. Ill. Apr. 6, 2017)(Reagan, J.); Segedie v. Hain Celestial Grp.
Inc., No. 14-5029, 2015 WL 2168374 (S.D.N.Y. May 7, 2015)(Roman, J.)).
Regarding their unjust-enrichment claims, the Plaintiffs argue that their allegations are viable
in every state for various reasons. See Cont. Arg. at 23. They argue that: (i) it is premature to
dismiss their unjust-enrichment claims at the rule 12(b)(6) stage in Massachusetts, Michigan, North
Carolina, and Washington; (ii) their claims satisfy the requisite elements in New Jersey and New
York; (iii) their Colorado claim may proceed as a restitution-based remedy; (iv) no New Mexico
statute expressly bars their New Mexico claim; and (v) Ohio law allows the Plaintiffs to plead their
unjust-enrichment claim in the alternative. See Cont. Arg. at 23. They also argue that, under New
Jersey, North Carolina, and Ohio unjust-enrichment law, they do not need to show that the
Defendants receive a direct benefit. See Cont. Arg. at 26-28 (citing Metric Constructors, Inc. v.
Bank of Tokyo-Mitsubishi, Ltd., 72 F. App’x 916, 921 (4th Cir. 2003)(unpublished); Stewart v.
Beam Global Spirits, 877 F. Supp. 3d 192, 200 (D.N.J. 2012)(Hillman, J.)). Finally, the Plaintiffs
assert that the privity requirement does not bar their breach-of-express-warranty claims in Florida,
New York, and Illinois, because the requirement is relaxed in packaging and economic damage
cases. See Cont. Arg. at 32-35.
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9.
Supplemental brief on the Memorandum of Agreement.
On November 29, 2017, the Defendants filed a supplemental brief concerning the
Memorandum of Agreement. See Santa Fe Natural Tobacco Company’s Supplemental Brief in
Support of Motion to Dismiss Responding to the Court’s Question Regarding Status of Agreement
with FDA Regarding NAS Product Labeling and Advertising, filed November 29, 2017
(Doc. 136)(“Supp. Brief on Mem.”).
The Defendants argue that they complied with the
Memorandum of Agreement and are no longer utilizing additive-free and natural on their labeling,
advertising, and promotional material except for natural in the Natural American brand name. See
Supp. Brief on Mem. ¶ 6, at 3. They conclude that the Memorandum of Agreement’s paragraph two
does not require them to remove or recall products that still have the terms natural and additive-free
on them. See Supp. Brief on Mem. ¶ 7, at 3.
LAW REGARDING RULE 12(B)(6)
Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes a court to dismiss a
complaint for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6).
“The nature of a Rule 12(b)(6) motion tests the sufficiency of the allegations within the four corners
of the complaint after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340
(10th Cir. 1994). The Complaint’s sufficiency is a question of law, and, when considering a rule
12(b)(6) motion, a court must accept as true all well-pled factual allegations in the complaint, view
those allegations in the light most favorable to the nonmoving party, and draw all reasonable
inferences in the plaintiff’s favor. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
322 (2007)(“[O]nly if a reasonable person could not draw . . . an inference [of plausibility] from the
alleged facts would the defendant prevail on a motion to dismiss.”); Smith v. United States, 561 F.3d
1090, 1098 (10th Cir. 2009)(“[F]or purposes of resolving a Rule 12(b)(6) motion, we accept as true
- 44 -
all well-pled factual allegations in a complaint and view these allegations in the light most favorable
to the plaintiff.”)(citing Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006)).
A complaint need not set forth detailed factual allegations, yet a “pleading that offers labels
and conclusions or a formulaic recitation of the elements of a cause of action” is insufficient.
Ashcroft v. Iqbal, 556 U.S. at 678 (2009)(citing Bell Atl. Corp. v. Twombly, 550 U.S. at 555).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,
do not suffice.” Ashcroft v. Iqbal, 556 U.S. at 678. “Factual allegations must be enough to raise a
right to relief above the speculative level, on the assumption that all the allegations in the complaint
are true (even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. at 555.
To survive a motion to dismiss, a plaintiff’s complaint must contain sufficient facts that, if
assumed to be true, state a claim to relief that is plausible on its face. See Bell Atl. Corp. v.
Twombly, 550 U.S. at 570; Mink v. Knox, 613 F.3d 995, 1000 (10th Cir. 2010). “A claim has facial
plausibility when the pleaded factual content allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. at 678 (citing Bell
Atl. Corp. v. Twombly, 550 U.S. at 556). “Thus, the mere metaphysical possibility that some
plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the
complainant must give the court reason to believe that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174,
1177 (10th Cir. 2007)(emphasis omitted). The United States Court of Appeals for the Tenth Circuit
has stated:
“[P]lausibility” in this context must refer to the scope of the allegations in a
complaint: if they are so general that they encompass a wide swath of conduct, much
of it innocent, then the plaintiffs “have not nudged their claims across the line from
conceivable to plausible.” The allegations must be enough that, if assumed to be
true, the plaintiff plausibly (not just speculatively) has a claim for relief.
- 45 -
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)(citations omitted)(quoting Bell Atl.
Corp. v. Twombly, 550 U.S. at 570). See Gallegos v. Bernalillo Cty. Board of Cty. Comm’rs, __
F. Supp. 3d __, 2017 WL 4402422, at *9 (D.N.M. 2017)(Browning, J.).
“When a party presents matters outside of the pleadings for consideration, as a general rule
‘the court must either exclude the material or treat the motion as one for summary judgment.’”
Brokers’ Choice of America, Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103 (10th Cir.
2017)(quoting Alexander v. Oklahoma, 382 F.3d 1206, 1214 (10th Cir. 2004)). There are three
limited exceptions to this general principle: (i) documents that the complaint incorporates by
reference, see Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007);
(ii) “documents referred to in the complaint if the documents are central to the plaintiff’s claim and
the parties do not dispute the documents’ authenticity,” Jacobsen v. Deseret Book Co., 287 F.3d at
941; and (iii) “matters of which a court may take judicial notice,” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. at 322. See also Brokers’ Choice of America, Inc. v. NBC Universal, Inc.,
861 F.3d at 1103 (holding that the district court did not err by reviewing a seminar recording and a
TV episode on a rule 12(b)(6) motion, which were “attached to or referenced in the amended
complaint” “central to [the plaintiff’s] claim,” and “undisputed as to their accuracy and
authenticity”). “[T]he court is permitted to take judicial notice of its own files and records, as well
as facts which are a matter of public record.” Van Woudenberg v. Gibson, 211 F.3d 560, 568 (10th
Cir. 2000), abrogated on other grounds by McGregor v. Gibson, 248 F.3d 946, 955 (10th Cir. 2001).
In Gee v. Pacheco, 627 F.3d 1178 (10th Cir. 2010), the defendants “supported their motion
with numerous documents, and the district court cited portions of those motions in granting the
[motion to dismiss].” 627 F.3d at 1186. The Tenth Circuit held that “[s]uch reliance was improper”
and that, even if “the district court did not err initially in reviewing the materials, the court
- 46 -
improperly relied on them to refute Mr. Gee’s factual assertions and effectively convert the motion
to one for summary judgment.” Gee v. Pacheco, 627 F.3d at 1186–87. In other cases, the Tenth
Circuit has emphasized that, “[b]ecause the district court considered facts outside of the complaint,
however, it is clear that the district court dismissed the claim under Rule 56(c) and not Rule
12(b)(6).” Nard v. City of Okla. City, 153 F. App’x. 529, 534 n.4 (10th Cir. 2005)(unpublished).17
In Douglas v. Norton, 167 F. App’x. 698 (10th Cir. 2006)(unpublished), the Tenth Circuit addressed
an untimely filed charge with the Equal Employment Opportunity Commission -- which the Court
analogized to a statute of limitations -- and concluded that, because the requirement was not
jurisdictional, the district court should have analyzed the question under rule 12(b)(6), and “because
the district court considered evidentiary materials outside of Douglas’ complaint, it should have
treated Norton’s motion as a motion for summary judgment.” 167 F. App’x. at 704–05.
The Court has previously ruled that, when a plaintiff references and summarizes statements
from defendants in a complaint for the purpose of refuting the statements in the complaint, the Court
cannot rely on documents the defendants attach to a motion to dismiss which contain their unredacted statements. See Mocek v. City of Albuquerque, No. Civ. 11-1009, 2013 WL 312881, at
*50-51 (D.N.M. Jan. 14, 2013)(Browning, J.). The Court reasoned that the statements were neither
17
Nard v. City of Okla. City is an unpublished Tenth Circuit opinion, but the Court can rely
on an unpublished Tenth Circuit opinion to the extent its reasoned analysis is persuasive in the case
before it. See 10th Cir. R. 32.1(A), 28 U.S.C. (“Unpublished opinions are not precedential, but may
be cited for their persuasive value.”). The Tenth Circuit has stated: “In this circuit, unpublished
orders are not binding precedent, . . . and . . . citation to unpublished opinions is not
favored. . . . However, if an unpublished opinion . . . has persuasive value with respect to a material
issue in a case and would assist the court in its disposition, we allow a citation to that decision.”
United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005). The Court concludes that Nard v.
City of Okla. City, Douglas v. Norton, How v. City of Baxter Springs, Good v. Fuji Fire & Marine,
Ins. Co., Hodgson v. Farmington City, and FTC v. LoanPointe, LLC have persuasive value with
respect to a material issue, and will assist the Court in its preparation of this Memorandum Opinion
and Order.
- 47 -
incorporated by reference nor central to the plaintiff’s allegations in the complaint, because the
plaintiff only cited the statements to attack their reliability and truthfulness. See 2013 WL 312881,
at *50-51. The Court has also previously ruled that, when determining whether to toll a statute of
limitations in an action alleging fraud and seeking subrogation from a defendant, the Court may not
use interviews and letters attached to a motion to dismiss, which evidence that a plaintiff was aware
of the defendant’s alleged fraud before the statutory period expired, in the Court’s ruling. See Great
Am. Co. v. Crabtree, No. 11-1129, 2012 WL 3656500, at *3, *22-23 (D.N.M. Aug. 23,
2012)(Browning, J.). The Court determined that the documents did not fall within any of the Tenth
Circuit’s exceptions to the general rule that a complaint must rest on the sufficiency of its contents
alone, as the complaint did not incorporate the documents by reference, or refer to the documents.
See 2012 WL 3656500, at *22-23; Mocek v. City of Albuquerque, No. 11-1009, 2013 WL 312881,
at *50 (D.N.M. 2013)(Browning, J.)(refusing to consider statements that were not “central to [the
Plaintiff’s] claims”).
On the other hand, in a securities class action, the Court has ruled that a defendant’s
operating certification, to which plaintiffs refer in their complaint, and which is central to whether
the plaintiffs’ adequately alleged a loss, falls within an exception to the general rule, so the Court
may consider the operating certification when ruling on the defendant’s motion to dismiss without
converting the motion into one for summary judgment. See Genesee Cty. Emps.’ Retirement Sys. v.
Thornburg Mortg. Secs. Trust 2006–3, 825 F. Supp. 2d 1082, 1150-51 (D.N.M. 2011)(Browning, J.);
Mata v. Anderson, 760 F. Supp. 2d 1068, 1101 (D.N.M. 2009)(Browning, J.)(relying on documents
outside of the complaint because they were “documents that a court can appropriately view as either
part of the public record, or as documents upon which the Complaint relies, and the authenticity of
which
is
not
in
dispute”);
S.E.C.
v.
Goldstone,
- 48 -
952
F. Supp. 2d 1060,
1217-18
(D.N.M. 2013)(Browning, J.)(considering, on a motion to dismiss, electronic mail transmissions
referenced in the complaint as “documents referred to in the complaint,” which are “central to the
plaintiff’s claim” and whose authenticity the plaintiff did not challenge).
LAW REGARDING JUDICIAL NOTICE OF DOCUMENTS WHEN RULING ON A
MOTION TO DISMISS
Rule 201 of the Federal Rules of Evidence allows a court to, at any stage of the proceeding,
take notice of “adjudicative” facts that fall into one of two categories: (i) facts that are “generally
known within the territorial jurisdiction of the trial court;” or (ii) facts that are “capable of accurate
and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b), (f). “Adjudicative facts are simply the facts of the particular case.” United
States v. Wolny, 133 F.3d 758, 764 (10th Cir. 1998)(quoting Advisory Committee Notes to rule
201). A court has discretion to take judicial notice of such facts, regardless whether requested. See
Fed. R. Evid. 201(c). On the other hand, if a party requests that the court take judicial notice of
certain facts, and supplies the necessary information to the court, judicial notice is mandatory. See
Fed. R. Evid. 201(d). Also, if the parties timely request an opportunity to be heard, the Court must
grant such an opportunity “as to the propriety of taking judicial notice and the tenor of the matter
noticed.” Fed. R. Evid. 201(e). That judicial notice may be taken during any stage of the judicial
proceeding includes the motion to dismiss stage. See 21 B C. Wright & K. Graham, Jr., Fed. Prac.
& Proc. Evid. § 5110, at 294 & n.17 (2d ed. 2005). Moreover, while ordinarily, a motion to dismiss
must be converted to a motion for summary judgment when the court considers matters outside the
Complaint, see Fed. R. Civ. P. 12(d), matters that are judicially noticeable do not have that effect,
see Duprey v. Twelfth Judicial Dist. Court, No. 08–0756, 2009 WL 2482171, at *7 (D.N.M. July 27,
2009)(Browning, J.)(citing Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 n.1 (10th
Cir. 2004)). Also, when considering a motion to dismiss, “the court is permitted to take judicial
- 49 -
notice of its own files and records, as well as facts which are a matter of public record.” Van
Woudenberg v. Gibson, 211 F.3d 560, 568 (10th Cir. 2000) abrogated on other grounds, McGregor
v. Gibson, 248 F.3d 946, 955 (10th Cir. 2001). The documents judicially noticed, however, should
not be considered for the truth of the matters asserted therein. See Tal v. Hogan, 453 F.3d 1244,
1265 n.24 (10th Cir. 2006). The Court has previously judicially noticed news publications and
public filings with the Securities and Exchange Commission. See S.E.C. v. Goldstone, 952
F. Supp. 2d at 1219-20; In re Thornburg Mortg., Inc. Securities Litig., 2009 WL 5851089, at *3-4.
See also Gallegos v. Bernalillo Cty. Bd. of Cty. Comm’rs, __ F. Supp. 3d __, 2017 WL 4402422, at
*18-19 (D.N.M. 2017)(Browning, J.)(ruling that the Court may take judicial notice of state court
orders); A.M ex rel. Youngers v. New Mexico Dep’t of Health, 117 F. Supp. 3d 1220, 1232 n.6
(D.N.M. 2015)(Browning, J.).
LAW REGARDING PREEMPTION
Article VI, clause 2, of the Constitution provides that the United States of America’s laws
“shall be the Supreme Law of the Land; . . . any Thing in the Constitution or Laws of any state to the
Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. Consistent with the Supremacy Clause, the
Supreme Court has “long recognized that state laws that conflict with federal law are ‘without
effect.’” Altria II, 555 U.S. at 75 (quoting Maryland v. Louisiana, 451 U.S. 725, 746 (1981)). The
Supreme Court has summarized the following situations in which preemption is likely to be found:
Pre-emption may be either expressed or implied, and is compelled whether Congress’
command is explicitly stated in the statute’s language or implicitly contained in its
structure and purpose. Absent explicit pre-emptive language, we have recognized at
least two types of implied pre-emption: field pre-emption, where the scheme of
federal regulation is so pervasive as to make reasonable the inference that Congress
left no room for the States to supplement it, and conflict pre-emption, where
compliance with both federal and state regulations is a physical impossibility, or
where state law stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.
- 50 -
Gade v. Nat’l Solid Wastes Mgmt. Assoc., 505 U.S. 88, 98 (1992).
As noted, preemption may be express or implied. See Gade v. Nat’l Solid Wastes Mgmt.
Assoc., 505 U.S. at 98. When faced with express preemption -- where a statute expressly states that
it preempts certain areas of state law -- a court must determine the scope of the preemption that
Congress intended. See Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)(stating that “the purpose
of Congress is the ultimate touch-stone in every pre-emption case”). “Congress may indicate preemptive intent through a statute’s express language or through its structure and purpose.” Altria II,
555 U.S. at 77. When the preemption clause’s text is susceptible to more than one plausible reading,
courts ordinarily “accept the reading that disfavors pre-emption.” Bates v. Dow Agrosciences, LLC,
544 U.S. 431, 449 (2005). Preemption arguments are analyzed under rule 12(b)(6), 12(c), or 56.
See Fisher v. Halliburton, 667 F.3d 602, 609 (5th Cir. 2012); Harris v. Kellog Brown & Root Servs.,
Inc., 724 F.3d 458, 464 n.1 (3d Cir. 2013).18
18
There may be a conflict between the United States Courts of Appeals regarding which rule
governs a district court’s review of preemption arguments. The United States Court of Appeals for
the Fifth Circuit has noted that preemption is not a jurisdictional question, so rule 12(b)(1) is
inappropriate. See Fisher v. Halliburton, 667 F.3d 602, 609 (5th Cir. 2012). Instead, it has held that
Federal preemption is an affirmative defense that a defendant must plead and prove.
Unless the complaint itself establishes the applicability of a federal-preemption
defense -- in which case the issue may properly be the subject of a Rule 12(b)(6)
motion -- a defendant should ordinarily raise preemption in a Rule 12(c) motion for
judgment on the pleadings or a Rule 56 motion for summary judgment.
Fisher v. Haliburton, 667 F.3d at 609. See Harris v. Kellog Brown & Root Servs., Inc., 724 F.3d
458, 464 n.1 (3d Cir. 2013)(“[T]he appropriate procedural device for reviewing the § 2680(j)
preemption argument is not a motion pursuant to Rule 12(b)(1), but rather a motion under either
Rule 12(b)(6) or for summary judgment.”). The United States Court of Appeals for the Sixth Circuit
has explained that preemption “does not normally concern the subject-matter jurisdiction of a court
to hear a claim, which is what is relevant to the resolution of a Rule 12(b)(1) motion.” Trollinger v.
Tyson Foods, Inc., 370 F.3d 602, 608 (6th Cir. 2004). See Boler v. Earley, 865 F.3d 391, 400 n.3
(6th Cir. 2017)(“We have not found other comparable cases using a Rule 12(b)(1) motion to address
statutory preemption of § 1983 claims; it appears that the district court incorrectly addressed this
issue as jurisdictional.”). “Rather, the doctrine generally concerns the merits of the claim itself.”
- 51 -
Determining express preemption’s scope entails scrutinizing the statutory text in light of two
presumptions. First,
[i]n all pre-emption cases, and particularly in those in which Congress has
legislated . . . in a field which the States have traditionally occupied, we start with the
assumption that the historic police powers of the States were not to be superseded by
the Federal Act unless that was the clear and manifest purpose of Congress.
Medtronic, Inc. v. Lohr, 518 U.S. at 485. Second, “[t]he purpose of Congress is the ultimate
touchstone in every pre-emption case.” Medtronic, Inc. v. Lohr, 518 U.S. at 485.
Congress’ intent, of course, primarily is discerned from the language of the preemption statute and the statutory framework surrounding it. Also relevant, however,
is the structure and purpose of the statute as a whole, as revealed not only in the text,
but through the reviewing court’s reasoned understanding of the way in which
Congress intended the statute and its surrounding regulatory scheme to affect
business, consumers, and the law.
Medtronic, Inc. v. Lohr, 518 U.S. at 486.
Implied conflict preemption is found when it is impossible for a private party to comply with
Trollinger v. Tyson Foods, Inc., 370 F.3d at 608. See also Metropolitan Edison Co. v. Pennsylvania
Public Utility Com’n, 767 F.3d 335, 362 (3d Cir. 2014)(noting that “pre-emption arguments do not
ordinarily raise issues of subject matter jurisdiction” but that “‘[d]octrines of federal preemption . . . may in some contexts be controlling’ over ‘the general rule of finality of jurisdictional
determinations.’”)(quoting Durfee v. Duke, 375 U.S. 106, 114 (1963)).
The United States Court of Appeals for the Ninth Circuit, however, has affirmed a case’s
dismissal on preemption grounds under rule 12(b)(1) without comment as to the appropriateness of
that rule to preemption arguments. See Cedars-Sinai Medical Center v. National League of
Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). The United States Court of Appeals for the
Seventh Circuit has also dismissed a claim under rule 12(b)(1) on preemption grounds, but only
where the federal law preempted the state law claim, and the federal law did not provide a private
right of action. Slaney v. The Int’l Amateur Athletic Fed’n, 244 F.3d 580, 594-96 (7th Cir. 2001).
The Tenth Circuit does not appear to have taken a definitive position on the issue. In Ryan v.
Donley, 511 F. App’x 687 (10th Cir. Feb. 14, 2013), the Tenth circuit affirmed a district court’s
dismissal of a Whistleblower Protection Act, 5 U.S.C. §§ 1201-1209, claim pursuant to rule 12(b)(1)
noting that “there can be no such claim, due to preemption by the Civil Service Reform Act.” 511 F.
App’x at 690. Dismissal for lack of subject matter under rule 12(b)(1) in that case appears proper,
however, because the Civil Service Reform Act’s “preemption” means that the Whistleblower
Protection Act does not provide a private right of action, so there is no federal question jurisdiction.
The Tenth Circuit has not otherwise commented on this issue.
- 52 -
both state and federal requirements, see English v. General Elec. Co., 496 U.S. 72, 78-79 (1990), or
where state law “stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress,” Hines v. Davidowitz, 312 U.S. 52, 67 (1941). “Pre-emptive intent may
also be inferred if the scope of the statute indicates that Congress intended federal law to occupy the
legislative field, or if there is an actual conflict between state and federal law.” Hines v. Davidowitz,
312 U.S. at 67 (citing Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995)).
Obstacle preemption is one form of implied preemption. Crosby v. Nat’l Foreign Trade
Council, 530 U.S. 363, 373 (2000)(holding that preemption is appropriate where the challenged state
law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives
of Congress”); Pharm. Research and Mfrs. of Am. v. Walsh, 538 U.S. 644, 679 (2003)(Thomas, J.,
concurring)(“Obstacle pre-emption turns on whether the goals of the federal statute are frustrated by
the effect of the state law.”). The Supreme Court instructed that, in obstacle preemption cases,
“there is no federal pre-emption in vacuo, without a constitutional text or a federal statute to assert
it.” P.R. Dep't of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 503 (1988). See Gade v.
Nat’l Solid Wastes Mgmt. Assoc., 505 U.S. at 98. A reviewing court must still “examine the explicit
statutory language and the structure and purpose of the statute.” Ingersoll-Rand Co. v. McClendon,
498 U.S. 133, 138 (1990). In 2000, the Supreme Court decided Geier v. Am. Honda Motor Co., 529
U.S. 861 (2000), which held, in a five-to-four decision, that a federal regulation which permitted, but
did not require, airbags to be installed in passenger vehicles preempted claims that a car was
defective because it lacked an airbag. See 529 U.S. at 874. The majority found: “The rule of state
tort law for which petitioners argue would stand as an ‘obstacle’ to the accomplishment of [the
federal regulation’s] objective. And the statute foresees the application of ordinary principles of preemption in cases of actual conflict. Hence, the tort action is pre-empted.” 529 U.S. at 886. Justice
- 53 -
Stevens, in dissent, expressed a desire to eliminate obstacle preemption. He argued that the
presumption against preemption
[s]erves as a limiting principle that prevents federal judges from running amok with
our potentially boundless (and perhaps inadequately considered) doctrine of implied
conflict pre-emption based on frustration of purposes -- i.e., that state law is preempted if it stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.
529 U.S. at 907-08 (Stevens, J., dissenting).
The Supreme Court has begun to back away from finding implied preemption based on an
alleged conflict with the purposes underlying federal regulations. In 2003, the Supreme Court issued
a unanimous decision in Sprietsma v. Mercury Marine, 537 U.S. 51 (2002), rejecting implied
conflict preemption of state law claims that a boat engine was defective because it lacked a propeller
guard. See 537 U.S. at 70. In so doing, the Supreme Court considered and rejected an argument that
the Coast Guard’s decision not to adopt a regulation requiring propeller guards impliedly preempted
state-law claims, which inflicted liability for lack of a propeller guard. See 537 U.S. at 65. It
explained:
The decision in 1990 to accept the subcommittee’s recommendation to take no
regulatory action left the law applicable to propeller guards exactly the same as it had
been before the subcommittee began its investigation. Of course, if a state commonlaw claim directly conflicted with a federal regulation promulgated under the Act, or
if it were impossible to comply with any such regulation without incurring liability
under state common law, pre-emption would occur. This, however, is not such a
case.
537 U.S. at 65.
In Altria II, the Supreme Court again considered the implied preemption doctrine and
rejected the defendants’ obstacle-preemption argument that the FCLAA, preempted a similar state
act, Maine’s Unfair Practices Act, Me. Rev. Stat. Ann., Tit. 5, § 207 (2008). See 555 U.S. at 90-91.
In Altria II, the plaintiffs filed suit against defendant cigarette manufactures for deceptively
- 54 -
marketing their Marlboro and Cambridge Light cigarettes as containing lower tar and nicotine to
convey that their light cigarettes were less harmful than regular cigarettes. See 555 U.S. at 73. The
Supreme Court concluded that the FCLAA, which forbids state law from requiring or prohibiting
language with respect to cigarette advertising and promotion, presented no obstacle to the plaintiffs’
lawsuit, because the federal law ultimately regulated warning labels, and did not regulate false or
misleading statements. See 555 U.S. at 82-83. The Supreme Court also considered whether an FTC
guidance statement, which noted that “a factual statement of the tar and nicotine content . . . would
not violate the FTC Act,” impliedly preempted the Plaintiffs’ claims. 555 U.S. at 87. The Supreme
Court contemplated and rejected the cigarette manufacturers’ argument that the FTC’s statement
“authorized them to use descriptors” such as “light or low tar,” because the FTC statements did not
require that cigarette manufacturers disclose their tar and nicotine yields, and the United States
“Government itself disavows any policy authorizing the use of light and low tar descriptors.” 555
U.S. at 88. Moreover, the Supreme Court determined that an FTC consent order that prevents the
cigarette manufacturers from using “light” and “low tar” descriptors, unless they are accompanied
“by a clear and conspicuous disclosure of the cigarettes’ tar and nicotine content” does not preempt
the plaintiffs’ claims, because “the decree only enjoined conduct,” and “a consent order is in any
event only binding on the parties to the agreement.” 555. U.S. at 589 n.13. The Supreme Court
concluded, thus, that federal law and regulations did not preempt the plaintiffs’ state-law claims.
See 555 U.S. at 90.
In Wyeth v. Levine, 555 U.S. 555 (2009), six Justices of the Supreme Court, including
Justices Breyer and Kennedy, who joined in the majority decision in Geier v. Am. Honda Motor Co.
rejected the plaintiff's two implied preemption arguments -- impossibility preemption and obstacle
preemption. See Wyeth v. Levine, 555 U.S. at 581. The Supreme Court held that
- 55 -
it is not impossible for Wyeth to comply with its state and federal law obligations
and that Levine’s common-law claims do not stand as an obstacle to the
accomplishment of Congress’ purposes in the [Federal Food, Drug, and Cosmetic
Act, 21 U.S.C.A. §§ 301, 321, 331-337, 341-350, 361-364, and 381-399; 21 C.F.R. §
201.80(e)(“FDCA”)].
Wyeth v. Levine, 555 U.S. at 581. In so ruling, Justice Stevens, writing for the majority, narrowly
limited Geier v. Am. Honda Motor Co. to its facts, noting that the decision in that case is based on
the substantive regulation’s “complex and extensive” history at issue. 555 U.S. at 566. The
Supreme Court rejected obstacle preemption, stating: “If Congress thought state-law suits posed an
obstacle to its objectives, it surely would have enacted an express pre-emption provision at some
point during the FDCA’s 70-year history.” 555 U.S. at 609. Justice Stevens quoted Justice
O’Connor’s explanation in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109
(1989): “The case for federal pre-emption is particularly weak where Congress has indicated its
awareness of the operation of state law in a field of federal interest, and has nonetheless decided to
stand by both concepts and to tolerate whatever tension there is between them.” Wyeth v. Levine,
555 U.S. at 575 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. at 166–67).
Of particular import for the current status of implied obstacle preemption is Justice Thomas’
concurring opinion in Wyeth v. Levine, in which he wrote:
I write separately, however, because I cannot join the majority’s implicit
endorsement of far-reaching implied pre-emption doctrines. In particular, I have
become increasingly skeptical of this Court’s “purposes and objectives” pre-emption
jurisprudence. Under this approach, the Court routinely invalidates state laws based
on perceived conflicts with broad federal policy objectives, legislative history, or
generalized notions of congressional purposes that are not embodied within the text
of federal law. Because implied pre-emption doctrines that wander far from the
statutory text are inconsistent with the Constitution, I concur only in the judgment.
555 U.S. at 583 (Thomas, J., concurring in the judgment). Justice Thomas continued:
Under the vague and potentially boundless doctrine of purposes and objectives preemption . . . the Court has pre-empted state law based on its interpretation of broad
federal policy objectives, legislative history, or generalized notions of congressional
- 56 -
purposes that are not contained within the text of federal law . . . Congressional and
agency musings, however, do not satisfy the Art. I, § 7 requirements for enactment of
federal law and, therefore, do not pre-empt state law under the Supremacy Clause.
555 U.S. at 587. Justice Thomas emphasized that, when analyzing the federal statutes’ or
regulations’ preemptive effect, “[e]vidence of pre-emptive purpose must be sought in the text and
structure of the provision at issue” to comply with the Constitution. 555 U.S. at 588 (citing CSX
Transp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993)).19
Moreover, the Supreme Court has put renewed emphasis on the presumption against
preemption. See Bates v. Dow Agrosciences, LLC, 544 U.S. 431, 449 (2005). “In areas of
traditional state regulation, [the Supreme Court] assume[s] that a federal statute has not supplanted
state law unless Congress has made such an intention clear and manifest.” Bates v. Dow
Agrosciences, LLC, 544 U.S. at 449. If confronted with two plausible interpretations of a statute,
the court has “a duty to accept the reading that disfavors pre-emption.” Bates v. Dow Agrosciences,
LLC, 544 U.S. at 449. See Wyeth v. Levine, 555 U.S. at 565; Cipollone v. Liggett Grp., Inc., 505
U.S. 504, 518 (1992)(plurality opinion). In Arizona v. United States, 567 U.S. 387 (2012), the
Supreme Court once again emphasized the importance of clear Congressional intent when applying
obstacle preemption. See 567 U.S. at 398-99. The Supreme Court struck down provisions of an
Arizona immigration law that would penalize aliens who sought, or engaged in, unauthorized
employment, because it “would interfere with the careful balance struck by Congress with respect to
unauthorized employment of aliens.” 567 U.S. at 406. With Justice Kagan taking no part in the
19
Justice Thomas, writing for the five-to-four majority in PLIVA, Inc. v. Mensing, 564 U.S.
604 (2011), recently concluded, however, that federal law preempted inconsistent state laws on
generic drug labeling, because it was impossible to comply with both federal law and the states’ law.
See 564 U.S. at 617–618. The Supreme Court sought to reconcile Wyeth v. Levine, however,
recognizing that the respective statutory schemes in each case are distinguishable. See PLIVA, Inc.
v. Mensing, 564 U.S. at 626 (“It is beyond dispute that the federal statutes and regulations that apply
to brand-name drug manufacturers are meaningfully different than those that apply to generic drug
manufacturers.”).
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consideration or decision of the case, writing for a five-to-three majority, which included Chief
Justice Roberts and Justices Ginsburg, Breyer, and Sotomayor, Justice Kennedy wrote: “The correct
instruction to draw from the text, structure, and history of [the Immigration Reform and Control Act
of 1986, 8 U.S.C. § 1101] is that Congress decided it would be inappropriate to impose criminal
penalties on aliens who seek or engage in unauthorized employment.” 567 U.S. at 406. The
Supreme Court ruled that Congressional intent was clear; Congress had considered and rejected
penalizing aliens who sought unauthorized employment. See 567 U.S. at 405. Federal immigration
law therefore preempted the Arizona law that would have penalized aliens seeking unauthorized
employment, because it would have created a penalty that Congress had clearly and intentionally
omitted. See 567 U.S. at 407.
The Tenth Circuit has recognized federal preemption of state law in three categories: (i)
when a federal statute expressly preempts state law (“express preemption”); (ii) where Congress
intends to occupy a field (“field preemption”); and (iii) to the extent that a state law conflicts with a
federal law (“conflict preemption”). Colo. Dept. of Pub. Health and Env’t., Hazardous Materials and
Waste Mgmt. Div. v. United States, 693 F.3d 1214, 1222 (10th Cir. 2012). As the defendant in
Colo. Dept. of Pub. Health and Env’t., Hazardous Materials and Waste Mgmt. Div. v. United States,
the United States invoked only conflict preemption to dismiss Colorado’s claims against it. See 693
F.3d at 1222. “To avoid conflict preemption, ‘it is not enough to say that the ultimate goal of both
federal and state law is the same. A state law also is pre-empted if it interferes with the methods by
which the federal statute was designed to reach this goal.” Chamber of Commerce v. Edmondson,
594 F.3d 742, 769 (10th Cir. 2010)(quoting Int’l Paper Co. v. Ouellette, 479 U.S. 481, 494
(1987)(alterations, citation omitted)). In Colo. Dept. of Pub. Health and Env’t., Hazardous Materials
and Waste Mgmt. Div. v. United States, the state of Colorado created a schedule for the United
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States to follow in the destruction of hazardous waste stored in the state, in an attempt to prohibit the
storage of hazardous waste within the state. See 693 F.3d at 1223. The Tenth Circuit held that the
state statute creating this schedule conflicted with a federal statute, which mandated a deadline for
the destruction of the materials. See 693 F.3d at 1224. The Tenth Circuit reasoned that allowing
Colorado to set a deadline for the destruction of the materials would impede the flexibility with
which Congress had intended in its deadline. See 693 F.3d at 1224. Because the Colorado deadline
would interfere with the method that Congress had intended for the waste’s disposal, the Tenth
Circuit concluded that the state law is in conflict with the federal law, and therefore, that the federal
law preempts Colorado’s schedule. See 693 F.3d at 1224.
LAW REGARDING DIVERSITY JURISDICTION AND ERIE
Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938)(“Erie”), a federal district court
sitting in diversity applies “state law with the objective of obtaining the result that would be reached
in state court.” Butt v. Bank of Am., N.A., 477 F.3d 1171, 1179 (10th Cir. 2007). Accord Mem.
Hosp. v. Healthcare Realty Trust Inc., 509 F.3d 1225, 1229 (10th Cir. 2007). The Court has held
that if a district court exercising diversity jurisdiction cannot find a Supreme Court of New Mexico
“opinion that [governs] a particular area of substantive law . . . [the district court] must . . . predict
how the Supreme Court of New Mexico would [rule].” Guidance Endodontics, LLC v. Dentsply
Int’l., Inc., 708 F. Supp. 2d 1209, 1224-25 (D.N.M. 2010)(Browning, J.). “Just as a court engaging
in statutory interpretation must always begin with the statute’s text, a court formulating an Erie
prediction should look first to the words of the state supreme court.” Peña v. Greffet, 110 F. Supp.
3d 1103, 1132 (D.N.M. 2015)(Browning, J.).20 If the Court finds only an opinion from the Court of
20
In performing its Erie-mandated duty to predict what a state supreme court would do if
faced with a case, see Comm’r v. Estate of Bosch, 387 U.S. 456 (1987), a federal court may
sometimes contradict the state supreme court’s own precedent if the federal court concludes that the
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Appeals of New Mexico, the Court “certainly may and will consider the Court of Appeal[s’]
decision in making its determination, [but] the Court is not bound by the Court of Appeal[s’]
decision in the same way that it would be bound by a Supreme Court decision.” Mosley v. Titus,
762 F. Supp. 2d at 1332 (noting that where the only opinion on point is “from the Court of Appeals,
[] the Court’s task, as a federal district court sitting in this district, is to predict what the Supreme
Court of New Mexico would do if the case were presented to it”)(citing Wade v. EMCASCO Ins.
Co., 483 F.3d 657, 666 (10th Cir. 2007)(explaining that, “[w]here no controlling state decision
exists, the federal court must attempt to predict what the state’s highest court would do,” and that,
“[i]n doing so, it may seek guidance from decisions rendered by lower courts in the relevant
state”)).21 The Court may also rely on Tenth Circuit decisions interpreting New Mexico law. See
state supreme court would, given the opportunity, overrule its earlier holding, see Anderson Living
Trust v. WPX Energy Prod., LLC, 27 F. Supp. 3d 1188, 1247 n.30 (D.N.M. 2014)(Browning, J.).
Courts should be reticent to formulate an Erie prediction that conflicts with state-court precedent;
even if the prediction turns out to be correct; such predictions produce disparate results between
cases filed in state and federal courts, because state supreme court precedent, even when it is
outdated, usually binds state trial courts. The factors to which a federal court should look before
predicting that a state supreme court will overrule its precedent vary depending upon the case, but
such factors consistently include: (i) the age of the state supreme court decision in question -- the
younger the state case, the less likely departure is warranted; (ii) the doctrinal reliance, or lack
thereof, that the state courts -- especially the state supreme court -- have placed on the state decision;
(iii) apparent shifts away from the doctrine that the state decision articulates, especially more recent
state supreme court decisions that explicitly call an older case’s holding into question; (iv) changes
in the composition of the state supreme court, especially if most of the dissenting justices from the
earlier state decision remain on the court; and (v) the decision’s patent illogic or its inapplicability to
modern times. See Peña v. Greffet, 110 F. Supp. 3d at 1132 n.17. In short, if a federal court predicts
that a state supreme court decision would be overruled, that decision is likely to be very old,
neglected by subsequent state-court cases -- perhaps because it is in a dusty corner of the common
law which does not get much attention or have much application -- and clearly wrong.
21
The Supreme Court of the United States has addressed what the federal courts may use
when there is not a decision on point from the state’s highest court:
The highest state court is the final authority on state law, but it is still the duty of the
federal courts, where the state law supplies the rule of decision, to ascertain and
apply that law even though it has not been expounded by the highest court of the
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Anderson Living Trust v. WPX Energy Prod., LLC, 27 F. Supp. 3d at 1243 & n.30.22 Ultimately,
“the Court’s task is to predict what the state supreme court would do.” Wade v. EMCASCO Ins.
State. An intermediate state court in declaring and applying the state law is acting as
an organ of the State and its determination, in the absence of more convincing
evidence of what the state law is, should be followed by a federal court in deciding a
state question. We have declared that principle in West v. American Telephone and
Telegraph Co., 311 U.S. 223 (1940), decided this day. It is true that in that case an
intermediate appellate court of the State had determined the immediate question as
between the same parties in a prior suit, and the highest state court had refused to
review the lower court’s decision, but we set forth the broader principle as applicable
to the decision of an intermediate court, in the absence of a decision by the highest
court, whether the question is one of statute or common law.
....
We have held that the decision of the Supreme Court upon the construction of a state
statute should be followed in the absence of an expression of a countervailing view
by the State’s highest court, and we think that the decisions of the Court of Chancery
[the New Jersey trial court] are entitled to like respect as announcing the law of the
State.
....
The question has practical aspects of great importance in the proper administration of
justice in the federal courts. It is inadmissible that there should be one rule of state
law for litigants in the state courts and another rule for litigants who bring the same
question before the federal courts owing to the circumstance of diversity of
citizenship. In the absence of any contrary showing, the rule [set forth by two New
Jersey trial courts, but no appellate courts] appears to be the one which would be
applied in litigation in the state court, and whether believed to be sound or unsound,
it should have been followed by the Circuit Court of Appeals.
Fid. Union Trust Co. v. Field, 311 U.S. 169, 177-80 (1940)(footnotes and citations omitted). The
Supreme Court has softened this position over the years; federal courts are no longer bound by state
trial or intermediate court opinions, but “should attribute [them] some weight . . . where the highest
court of the State has not spoken on the point.” Comm’r v. Estate of Bosch, 387 U.S. at 465 (citing
King v. Order of United Commercial Travelers, 333 U.S. 153, 159 (1948)). See 17A James Wm.
Moore et al., Moore’s Federal Practice § 124.20 (3d ed. 1999)(“Decisions of intermediate state
appellate courts usually must be followed . . . [and] federal courts should give some weight to state
trial courts decisions.”)(emphasis and title case omitted).
22
In determining the proper weight to accord Tenth Circuit precedent interpreting New
Mexico law, the Court must balance the need for uniformity between federal court and state court
interpretations of state law with the need for uniformity among federal judges. If the Court adheres
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too rigidly to Tenth Circuit case law, ignoring changes undergone by a state’s law in the ensuing
years, then parties litigating state-law claims will be subject to a different body of substantive law,
depending on whether they litigate in state court or federal court. This result frustrates the purpose
of Erie, which held that federal courts must apply state court interpretations of state law, rather than
their own, in part so that parties achieve a consistent result regardless of the forum. This
consideration pulls the Court toward according Tenth Circuit precedent less weight and according
state court decisions issued in the ensuing years more weight. On the other hand, when the state law
is unclear, it is desirable for there to at least be uniformity among federal judges as to its proper
interpretation. Otherwise, different federal judges within the same circuit -- or even the same
district, as district courts’ decisions are not binding, even upon themselves -- would be free to adopt
differing interpretations of a state’s law. This consideration pulls the Court towards a stronger
respect for vertical stare decisis, because a Tenth Circuit decision on point -- regardless whether it
accurately reflects state law -- at least provides consistency at the federal level, so long as federal
district judges are required to follow it.
The Court must decide how to weigh Tenth Circuit case law against more-recent state court
decisions, choosing a point on the spectrum between the two extremes: rigidly adhering to Tenth
Circuit precedent unless there is intervening case law directly on point from the state’s highest court,
on one end; and independently interpreting the state law, regarding the Tenth Circuit precedent as no
more than persuasive authority, on the other. In striking this balance, the Court notes that it is
generally more concerned about systemic inconsistency between the federal courts and the state
courts than it is about inconsistency among federal judges. Judges, even those within a jurisdiction
with ostensibly identical governing law, sometimes interpret and apply the law differently from one
another; this inconsistency is part and parcel of a common-law judicial system. More importantly,
litigants seeking to use forum selection to gain a substantive legal advantage cannot easily
manipulate such inconsistency: cases are assigned randomly to district judges in this and many
federal districts; and, regardless, litigants cannot know for certain how a given judge will interpret
the state law, even if they could determine the judge’s identity pre-filing or pre-removal. All
litigants know in advance is that whomever federal district judge they are assigned will look to the
entirety of the state’s common law in making his or her determination -- the same as a state judge
would. Systemic inconsistency between the federal courts and state courts, on the other hand, not
only threatens the principles of federalism, but litigants may more easily manipulate the
inconsistency. When the Tenth Circuit issues an opinion interpreting state law, and the state courts
subsequently shift away from that interpretation, litigants -- if the district courts strictly adhere to the
Tenth Circuit opinion -- have a definite substantive advantage in choosing the federal forum over the
state forum, or vice versa.
The Court further notes that district courts may be in a better position than the Tenth Circuit
to be responsive to changes in state law. Tenth Circuit decisions interpreting a particular state’s law
on a specific issue are further apart in time than the collective district courts’ are. More importantly,
the Tenth Circuit does not typically address such issues with the frequency that the state’s courts
themselves do. Accordingly, Tenth Circuit precedent can lag behind developments in state
law -- developments that the district courts may be nimble enough to perceive and adopt.
Additionally, much of the benefit of having a consistent Tenth Circuit-wide interpretation of a
particular state’s law is wasted. Other than Oklahoma, every state encompassed by the Tenth Circuit
contains only one federal judicial district, and there is relatively little need for federal judges in
Wyoming and Kansas to have a uniform body of New Mexico law to which to look. Last, the Court
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notes, respectfully, that district courts may be in a better position than the Tenth Circuit to develop
expertise on the state law of the state in which they sit. Every federal judicial district in the nation,
except the District of Wyoming, covers at most one state. It is perhaps a more workable design for
each district court to keep track of legal developments in the state law of its own state(s) than it is for
the Tenth Circuit to monitor separate legal developments in eight states.
Having outlined the relevant considerations, the Court concludes that the proper stance on vertical
stare decisis in the context of federal court interpretations of state law is as follows: the Tenth
Circuit’s cases are binding as to their precise holding -- what the state law was on the day the
opinion was published -- but lack the positive precedential force that its cases interpreting a federal
statute or the Constitution of the United States of America possess. A district court considering a
state law issue after the publication of a Tenth Circuit opinion on point may not come to a contrary
conclusion based only on state court cases available to and considered by the Tenth Circuit, but it
may come to such a conclusion based on intervening state court cases.
When interpreting state law, the Tenth Circuit does not and cannot issue a case holding that x is the
law in New Mexico; it holds that the proper interpretation of New Mexico law, at the time the
opinion is released, is x. Its holdings are descriptive, not prescriptive -- interpretive, not normative.
Because federal judicial opinions lack independent substantive force on state law issues, but possess
such force regarding federal law issues, the Court concludes that the following is not an unfair
summary of the judicial interpretive process: (i) when interpreting federal law, the federal appellate
courts consider the existing body of law, and then issue a holding that both reflects and influences
the body of law; that holding subsequently becomes a part of the body of law; but (ii) when
interpreting state law, the federal appellate courts consider the existing body of law, and then issue a
holding that only reflects the body of law; that holding does not subsequently become a part of the
body of law. The federal district courts are bound to conclude that the Tenth Circuit’s reflection of
the then-existing body of law was accurate. The question is whether they should build a doctrine
atop the case and use the existence of the Tenth Circuit’s case to avoid any responsibility to
independently consider the whole body of state law that exists when the time comes that diversity
litigants raise the issue in their courtrooms. Giving such effect to the Tenth Circuit’s interpretations
of state law is at tension with Erie, giving independent substantive effect to federal judicial
decisions -- i.e., applying federal law -- in a case brought in diversity.
The purpose of Erie is well-known and simple, and the Court should not complicate it beyond
recognition: it is that the same substantive law governs litigants’ cases regardless whether they are
brought in a federal or state forum. For simplicity’s sake, most courts have settled on the
formulation that “the federal court must attempt to predict how the states’ highest court would rule if
confronted with the issue.” Moore’s § 124.22[3] (citing Comm’r v. Estate of Bosch, 387 U.S. at 465
(“[A]n intermediate appellate state court [decision] is a datum for ascertaining state law which is not
to be disregarded by a federal court unless it is convinced by other persuasive data that the highest
court of the state would decide otherwise.”)(citation and internal quotation marks omitted). This
formulation may not be the most precise one if the goal is to ensure identical outcomes in state and
federal court -- the Honorable Milton I. Shadur, United States District Judge, looks to state
procedural rules to determine in which state appellate circuit the suit would have been filed were it
not in federal court, and then applies the state law as that circuit court interprets it, see Abbott
Laboratories v. Granite State Ins. Co., 573 F. Supp. 193, 196-200 (N.D. Ill. 1983)(noting that the
approach of predicting the state supreme court’s holdings will often lead to litigants obtaining a
different result in federal court than they would in state court, where only the law of the circuit in
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which they filed -- and certainly not nonexistent, speculative state supreme court
law -- governs) -- but it is a workable solution that has achieved consensus. See Allstate Ins. Co. v.
Menards, Inc., 285 F.3d 630, 637 (7th Cir. 2002)(“[W]e adhere today to the general rule, articulated
and applied throughout the United States, that, in determining the content of state law, the federal
courts must assume the perspective of the highest court in that state and attempt to ascertain the
governing substantive law on the point in question.”). This formulation, built out of ease-of-use,
does not relieve courts of their Supreme Court-mandated obligation to consider state appellate and
trial court decisions. To the contrary, even non-judicial writings by influential authors, statements
by state supreme court justices, the closeness of the vote on a prior case addressing the issue, and
personnel changes on the court -- considerations that would never inform a federal court’s analysis
of federal law -- may validly come into play. The question is whether the district courts must
abdicate, across-the-board, the “would decide” aspect of the Erie analysis to their parent appellate
courts when the Court of Appeals has declared an interpretation of state law.
The Erie doctrine results in federal cases that interpret state law withering with time. While
cases interpreting federal law become more powerful over time -- forming the groundwork for
doctrines, growing upward from one application (Congress may create a national bank) to many
(Congress may set quotas on wheat-growing for personal consumption), expanding outward from the
general (states must grant criminal jury trials) to the specific (the jury need not be twelve people, nor
must it be unanimous) -- federal cases interpreting state law often become stale. New state court
cases -- even when not directly rebuking the federal court’s statement of law -- alter the commonlaw legal landscape with their dicta, their insinuations, and their tone. The Supreme Court, which
picks its cases sparingly and for maximum effect, almost never grants certiorari to resolve issues of
state law.
The Court’s views on Erie, of course, mean little if the Tenth Circuit does not agree. In
Wankier v. Crown Equipment Corp., 353 F.3d 862 (10th Cir. 2003)(McConnell, J.), the Tenth
Circuit said that,
[w]here no controlling state decision exists, the federal court must attempt to predict
what the state’s highest court would do. In performing this ventriloquial function,
however, the federal court is bound by ordinary principles of stare decisis. Thus,
when a panel of this Court has rendered a decision interpreting state law, that
interpretation is binding on district courts in this circuit, and on subsequent panels of
this Court, unless an intervening decision of the state’s highest court has resolved the
issue.
Wankier v. Crown Equip. Corp, 353 F.3d at 866. From this passage, it seems clear the Tenth Circuit
only permits a district court to deviate from its view of state law on the basis of a subsequent case
“of the state’s highest court.” The American Heritage Dictionary of the English Language 1402
(William Morris ed., New College ed. 1976)(defining “unless” as “[e]xcept on the condition that;
except under the circumstances that”). A more aggressive reading of the passage -- namely the
requirement that the intervening case “resolv[e] the issue” -- might additionally compel the
determination that any intervening case law must definitively and directly contradict the Tenth
Circuit interpretation in order to be considered “intervening.”
It is difficult to know whether Judge McConnell’s limitation of “intervening decision” to cases from
the highest state court was an oversight or intentional. Most of the Tenth Circuit’s previous
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Co., 483 F.3d at 666. Accord Mosley v. Titus, 762 F. Supp. 2d at 1332 (citation omitted); Rimbert
v. Eli Lilly & Co., 577 F. Supp. 2d 1174, 1188-89 (D.N.M. 2008)(Browning, J.)(quoting Wade v.
EMCASCO Ins. Co., 483 F.3d at 665-66).
LAW REGARDING ERIE AND THE RULES ENABLING ACT
“In diversity cases, the Erie doctrine instructs that federal courts must apply state substantive
law and federal procedural law.” Racher v. Westlake Nursing Home Ltd. P’ship, 871 F.3d 1152,
1162 (10th Cir. 2017)(“Racher”). “If a federal rule of civil procedure answers the question in
formulations of this rule have defined intervening decisions inclusively as all subsequent decisions
of “that state’s courts,” a term which seems to include trial and intermediate appellate courts. Even
Koch v. Koch Industries, Inc., 203 F.3d 1202, 1231 (10th Cir. 2000), the primary authority upon
which Wankier v. Crown Equipment Corp. relies, uses the more inclusive definition. In fact,
Wankier v. Crown Equipment Corp. quotes its relevant passage:
In the absence of intervening Utah authority indicating that a plaintiff is not required
to prove a safer, feasible alternative design, we are bound to follow the rule of Allen
[v. Minnstar, Inc., 8 F.3d 1470 (10th Cir. 1993), a Tenth Circuit case interpreting an
issue of Utah law], as was the district court. “Following the doctrine of stare decisis,
one panel of this court must follow a prior panel’s interpretation of state law, absent a
supervening declaration to the contrary by that state’s courts or an intervening
change in the state’s law.” Koch v. Koch Indus., Inc., 203 F.3d at 1231.
Wankier v. Crown Equip. Corp., 353 F.3d at 867.
Regardless whether the decision to limit the intervening authority a district court can consider
was intentional, the Tenth Circuit has picked it up and run with it. In Kokins v. Teleflex, Inc., the
Tenth Circuit, quoting Wankier v. Crown Equipment Corp., refused to consider an opinion from the
Court of Appeals of Colorado holding directly the opposite of an earlier Tenth Circuit interpretation
of Colorado law.
See Kokins v. Teleflex, Inc., 621 F.3d 1290, 1297 (10th Cir.
2010)(Holmes, J.)(“[T]he Colorado Court of Appeals decided Biosera[, Inc. v. Forma Scientific,
Inc., 941 P.2d 284 (Colo. Ct. App. 1998)], so it is not an ‘intervening decision of the state’s highest
court.’”)(emphasis in original)(quoting Wankier v. Crown Equip. Corp., 353 F.3d at 866).
The Tenth Circuit has set forth a stringent restriction on its district courts’ ability to independently
administer the Erie doctrine. More importantly, the Tenth Circuit’s view may be at tension with the
above-quoted Supreme Court precedent, as well as its own prior case law. Moore’s lists the Tenth
Circuit as having been, at one time, a “court[ that] hold[s] that a prior federal appellate decision
[interpreting state law] is persuasive.” Moore’s § 124.22[4] (citing State Farm Mut. Auto. Ins. Co. v.
Travelers Indem. Co., 433 F.2d 311, 312 (10th Cir. 1970)). Still, the Court is bound to abide by the
Tenth Circuit’s interpretation of Erie.
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dispute, that rule governs our decision so long as it does not ‘exceed[] statutory authorization or
Congress’s rulemaking power.’” Racher, 871 F.3d at 1162 (quoting Shady Grove Orthopedic
Assocs. v. Allstate Ins. Co, 559 U.S. 393, 398 (2010)(“Shady Grove”)). “When faced with a choice
between a state law and an allegedly conflicting federal rule,” the Tenth Circuit “follow[s] the
framework described by the Supreme Court in Shady Grove, as laid out by Justice Stevens in his
concurring opinion.” Racher, 871 F.3d at 1162. “First, the court must decide whether the scope of
the federal rule is sufficiently broad to control the issue before the court, thereby leaving no room for
the operation of seemingly conflicting state law.” Racher, 871 F.3d at 1162 (citations and quotations
omitted). There is a conflict between federal and state law if there is a “direct collision” that is
“unavoidable,” but there is no collision if the state and federal rules “can exist side by side . . . each
controlling its own sphere of coverage.” Racher, 871 F.3d at 1163 (citations omitted). If there is no
direct collision, “there is no need to consider whether the federal rule is valid, and instead, the
analysis must proceed under Erie.” Racher, 871 F.3d at 1163. If there is a direct collision, a court
must follow the federal rule if it is a valid exercise of the Supreme Court’s authority pursuant to the
Rules Enabling Act, i.e., it must “not abridge, enlarge or modify a substantive right.” 28
U.S.C. § 2072(b). See Racher, 871 F.3d at 1163-64. A state law is substantive if after examining
“the language and policy of the rule in question . . . the primary objective is directed to influencing
conduct through legal incentives,” and a state law is procedural if the law’s purpose is to “achiev[e]
fair, accurate, and efficient resolutions of disputes.” Sims v. Great American Life Ins. Co., 469
F.3d 870, 883 (10th Cir. 2006). See Leon v. FedEx Ground Package Sys., Inc., 313 F.R.D. 615, 641
(D.N.M. 2016)(Browning, J.). The Tenth Circuit recently added: “If a state law ‘concerns merely
the manner and means’ by which substantive rights are enforced, it is procedural, but if its
application would ‘significantly affect the result of litigation, it is substantive.’” Racher, 871 F.3d at
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1164 (quoting Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1945)).
LAW REGARDING SEVERANCE UNDER RULE 21
A district court may sever a case under Rule 21 to “transfer one action while retaining
jurisdiction over the other.” Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1519
(10th Cir. 1991)(citing Wyndham Assoc. v. Bintliff, 398 F.2d 614, 618 (2d Cir.1968)). Courts are
mindful of judicial efficiency concerns, however, and might not sever and transfer a case when doing
so results in two venues hearing virtually the same case based on the same set of facts. See, e.g.,
Gallery House, Inc. v. Yi, 587 F. Supp. 1036, 1039-40 (N.D.Ill.1984)(“When the most efficient
administration of justice in a copyright infringement action compelled the continuation of the action
against both defendants in a single forum, severance of the claim against one defendant as to whom
transfer would have been permissible was inappropriate.”).
[T]he court must weigh carefully whether the inconvenience of splitting the suit
outweighs the advantages to be gained from the partial transfer [and] should not
sever if the defendant over whom jurisdiction is retained is so involved in the
controversy to be transferred that partial transfer would require the same issue to be
litigated in two cases.
Liaw Su Teng v. Skaarup Shipping Corp., 743 F.2d 1140, 1148 (5th Cir.1984), overruled on other
grounds by In re Air Crash Disaster Near New Orleans, La.. on July 9, 1982, 821 F.2d 1147 (5th
Cir.1987). When the granting of a motion to sever and transfer claims would require two separate
sets of discovery proceedings with regard to events surrounding a single [event], and when the
moving defendants were alleged to have acted singly and in concert with other defendants in the
commission of securities law violations, severance prior to the completion of discovery was denied.
Sec. & Exchange Comm’n v. Nat’l Student Mktg. Corp., 360 F. Supp. 284, 296 (D.D.C.
1973)(Parker, J.).
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LAW REGARDING THE FIRST AMENDMENT
“Congress shall make no law . . . abridging the freedom of speech.” U.S. Const. amend. I.
This clause -- the Free Speech Clause -- may act as a shield to liability in instances where otherwise
illegal or unlawful conduct implicates a party’s freedom of speech. See Marsh v. Alabama, 326 U.S.
501, 509 (1946)(ruling that the Free Speech clause shielded a Jehovah’s witness who distributed
religious material on a company town’s sidewalk from criminal trespass charges). “It is, of course,
commonplace that the constitutional guarantee of free speech is a guarantee only against abridgment
by government, federal or state.” Hudgens v. N.L.R.B, 424 U.S. 507, 513 (1976). State action,
thus, is typically a prerequisite for First Amendment protections. See Hudgens v. N.L.R.B, 424 U.S.
at 520-21.
1.
The First Amendment and State Action.
For most of American history, enforcing the common law was not thought to implicate state
action. See Daniel J. Solove & Neil M. Richards, Rethinking Free Speech and Civil Liability, 109
Colum. L. Rev. 1650, 1656 (2009). In Coppage v. Kansas, 236 U.S. 1, 17 (1915), the Supreme
Court ruminated:
[I]t is self evident that, unless all things are held in common, some persons must have
more property than others, it is from the nature of things impossible to uphold
freedom of contract and the right of private property without at the same time
recognizing as legitimate those inequalities of fortune that are the necessary result of
the exercise of those rights.
Coppage v. Kansas, 236 U.S. at 17 overruled in part Phelps Dodge Corp. v. N.L.R.B., 313 U.S. 177,
187 (1941). After the New Deal, the state action doctrine underwent a radical transformation, and
the Supreme Court ruled that various judicial actions amounted to state action where, previously,
those actions likely would not have. See Shelley v. Kraemer, 334 U.S. 1, 18-19 (1948)(ruling that
judicial enforcement of racially restrictive covenants is state action); New York Times Co. v.
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Sullivan, 376 U.S. 254, 265 (1964)(holding that state adjudication of a libel lawsuit is state action);
Cohen v. Cowles Media Co., 501 U.S. 663, 668 (1991)(“Our cases teach that the application of state
rules of law in state courts in a manner alleged to restrict First Amendment freedoms constitutes
‘state action’”). In Shelley v. Kraemer, the Supreme Court explained:
The short of the matter is . . . the action of the States to which the [Fourteenth]
Amendment has reference, includes action of state courts and state judicial officials.
Although, in construing the terms of the Fourteenth Amendment, differences have
from time to time been expressed as to whether particular types of state action may
be said to offend the Amendment’s prohibitory provisions, it has never been
suggested that state court action is immunized from the operation of those provisions
simply because the act is that of the judicial branch of the state government.
334 U.S. at 18. Thus, as the Supreme Court has recently reaffirmed, the Free Speech Clause “can
serve as a defense in state tort suits.” Snyder v. Phelps, 562 U.S. 443, 451 (2011). See N.A.A.C.P.
v. Claiborne Hardware Co., 458 U.S. 886 n.51 (1982)(“Although this is a civil lawsuit between
private parties, the application of state rules of law by the Mississippi state courts in a manner
alleged to restrict First Amendment freedoms constitutes ‘state action’ under the Fourteenth
Amendment.”)
The state action doctrine as applied to judicial enforcement of statutory and common-law
claims has limits. See Solove & Richards, Rethinking Free Speech and Civil Liability, 109 Colum.
L. Rev. at 1664. For example, the Supreme Court has limited the same state action rationale in the
property-law context. See Hudgens v. N.L.R.B., 424 U.S. at 513; Lloyd Corp., Ltd. v. Tanner, 407
U.S. 551, 570 (1972). In Hudgens v. N.L.R.B., the Supreme Court considered whether the First
Amendment protected union members picketing in a privately owned shopping center from a threat
of criminal trespass charges. See Hudgens v. N.L.R.B., 424 U.S. at 508. In considering that issue,
the Supreme Court explained:
It is, of course, a commonplace that the constitutional guarantee of free speech is a
guarantee only against abridgement by government, federal or state. Thus, while
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statutory or common law may in some situations extend protection or provide redress
against a private corporation or person who seeks to abridge the free expression of
others, no such protection or redress is provided by the Constitution itself.
Hudgens v. N.L.R.B., 424 U.S. at 513 (citation omitted). In ruling that the First Amendment did not
apply, the Supreme Court emphasized that: “In addressing this issue, it must be remembered that the
First and Fourteenth Amendments safeguard the rights of free speech and assembly by limitations on
State action, not on action by the owner of private property used nondiscriminatorily for private
purposes only.” Hudgens v. N.L.R.B., 424 U.S. at 519 (quoting Lloyd Corp., Ltd. v. Tanner, 407
U.S. at 567). See Central Hardware Co. v. N.L.R.B., 407 U.S. 539, 547 (1972)(“The First and
Fourteenth Amendments are limitations on state action, not action by the owner of private property
used only for private purposes.”). The Supreme Court concluded, thus, that the First Amendment
offered no protection to the picketers, because the shopping center was a private entity and not “the
functional equivalent of a municipality.” Hudgens v. N.L.R.B., 424 U.S. at 520.
The Supreme Court has also stated that private party conduct may be deemed state action
when the “conduct allegedly causing the deprivation of a federal right may be fairly attributable to
the State.” Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937 (1982). Whether the conduct may
in fact be “fairly attributed” to the state requires a two-part inquiry. “First, the deprivation must be
caused by the exercise of some right or privilege created by the State or by a rule of conduct imposed
by the state or by a person for whom the State is responsible.” Lugar v. Edmondson Oil Co., Inc.,
457 U.S. at 937. “Second, the party charged with the deprivation must be a person who may fairly
be said to be a state actor.” Lugar v. Edmondson Oil Co., Inc., 457 U.S. at 937. See West v.
Atkins, 487 U.S. 42, 48 (1988)(explaining that, to state a claim under § 1983, the plaintiff must
show: (i) deprivation of a right that the federal constitution or federal laws secure; and (ii) that a
person acting under color of state law caused the deprivation).
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In Lugar v. Edmondson Oil Co., Inc., the Supreme Court explained that the two prongs
merge when the claim is “directed against a party whose official character is such as to lend the
weight of the State to his decisions,” whereas they remain distinct when analyzing the private
parties’ conduct. 457 U.S. at 937. The Lugar v. Edmondson Oil Co., Inc. test’s first prong -- that
the deprivation of a right is attributable to the state -- is satisfied when “the authority of state
officials . . . put the weight of the State behind [the] Defendant’s private decision.” 457 U.S. at 940.
The Supreme Court, in Lugar v. Edmondson Oil Co., Inc., further instructed that the second prong,
identification of a defendant as a state actor, may arise, “because he is a state official, because he has
acted together with or has obtained significant aid from state officials, or because his conduct is
otherwise chargeable to the state.” 457 U.S. at 937.
In Lugar v. Edmondson Oil Co., Inc., the Supreme Court determined that the plaintiff’s
allegation that the defendants unlawfully deprived the plaintiff of his property without due process
under state law failed to state a claim under 42 U.S.C. § 1983. See 457 U.S. at 940. The Supreme
Court also held that the plaintiff’s claim alleging that the private parties had invoked a state statute
maliciously or without valid grounds did not give rise to state action. See 457 U.S. at 940. Instead,
that claim amounted to nothing more than the private misuse or abuse of a state statute. See 457
U.S. at 940-41.
For a private individual to be acting under color of state law, the deprivation of a federal right
“must be caused by the exercise of some right or privilege created by the State or by a rule of
conduct imposed by the state or by a person for whom the State is responsible,” and “the party
charged with the deprivation must be a person who may fairly be said to be a state actor . . . because
he is a state official, because he has acted together with or has obtained significant aid from state
officials, or because his conduct is otherwise chargeable to the State.” Lugar v. Edmondson Oil Co.,
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457 U.S. at 937.
Congress did not, in using the term “under the color of state law,” intend to subject
private citizens, acting as private citizens, to a federal lawsuit whenever they seek to
initiate a prosecution or seek a remedy involving the judicial system. To hold
otherwise would significantly disregard one purpose of the state action requirement,
which is to “preserve[ ] an area of individual freedom by limiting the reach of federal
law and federal judicial power.” Lugar, 457 U.S. at 936. . . . Instead, in enacting §
1983, Congress intended to provide a federal cause of action primarily when the
actions of private individuals are undertaken with state authority. See id. . . . Thus,
absent more, causing the state, or an arm of the state, to initiate a prosecution or
serve process is insufficient to give rise to state action.
How v. City of Baxter Springs, 217 F. App’x. 787, 793 (10th Cir. 2007)(unpublished).
The Tenth Circuit has described the determination of state action as “particularly factsensitive, so the circumstances must be examined in their totality.” Marcus v. McCollum, 394 F.3d
813, 819 (10th Cir. 2004). According to the Tenth Circuit, “[t]he Supreme Court has counseled us
that the state action inquiry, although a legal determination to be made by the court, [see Gilmore v.
City of Montgomery, 417 U.S. 556, 570 (1974),] requires the ‘sifting [of] facts and weighing [of]
evidence.’” Phelps v. Wichita Eagle–Beacon, 886 F.2d 1262, 1271 (10th Cir.1989)(quoting Burton
v. Wilmington Parking Auth., 365 U.S. 715, 722(1961)). In Gilmore v. City of Montgomery, the
Supreme Court ruled that, although it was the Court’s role to determine whether the use of zoos,
museums, parks, and other recreational facilities by private school groups and private non-school
organizations “involved government so directly in the actions of those users as to warrant court
intervention on constitutional grounds,” the factual record before the Supreme Court “[did] not
contain sufficient facts upon which to predicate legal judgments of this kind.” 417 U.S. at 570.
On the other hand, leaving the determination of state action to the jury has shown to be illadvised. The cases in which the acts of private entities have been held to constitute state action or to
be under color of law, and cases in which they have not, tend to be distinguished “by fine shadings in
the sometimes complex interrelationships that develop between the state and private bodies.”
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Adams v. Vandemark, 787 F.2d 588, 1986 WL 16606, at *2 (6th Cir.1986)(unpublished). In Adams
v. Vandemark, the United States Court of Appeals for the Sixth Circuit reviewed a jury instruction
from the United States District Court for the Eastern District of Michigan, instructing the jury on
when to find state action. 1986 WL 16606, at *1. The Sixth Circuit concluded that the few words
that were given to the jury on when to find state action “gave the jury little to guide it in making its
determination on this crucial element of the claim for relief.” 1986 WL 16606, at *2. The Sixth
Circuit noted that the application of the state action test is a “very difficult and complex question[],”
and, “[t]o the extent a jury is to decide upon the proper factual predicates for this essentially legal
determination, it must be given instructions that are clear, precise and informative as to the factors
involved and the factual issues to be determined.” 1986 WL 16606, at *2. The Sixth Circuit found
that the defendants were entitled to a new trial, because the jury was given no direction that could
have enabled it to make the necessary underlying factual determination regarding state action. See
1986 WL 16606, at *2-3.
The Supreme Court has articulated four different tests for courts to use in determining
whether conduct by an otherwise private party is state action: (i) the public-function test; (ii) the
nexus test; (iii) the symbiotic-relationship test; and (iv) the joint-action test. See Johnson v.
Rodrigues (Orozco), 293 F.3d 1196, 1202-03 (10th Cir. 2002)(reviewing the various tests);
Gallagher v. Neil Young Freedom Concert, 49 F.3d 1442, 1447 (10th Cir.1995)(noting that
“[a]pplication of the state action doctrine has been characterized as one of the more slippery and
troublesome areas of civil rights litigation”)(internal quotation marks omitted)). Under the publicfunction test, a court determines whether a private party has exercised “powers traditionally
exclusively reserved to the State.” Jackson v. Metro. Edison Co., 419 U.S. 345, 352 (1974). The
public-function test is difficult to satisfy, because while many functions may be traditionally
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governmental, few are “exclusively” governmental functions, as the test requires. Gallagher v. Neil
Young Freedom Concert, 49 F.3d at 1456. The courts have found exclusive government functions to
include holding elections, performing necessary municipal functions, and running a nursing facility.
See Johnson v. Rodrigues (Orozco), 293 F.3d at 1203.
Under the nexus test, state action is present if the state has ordered the private conduct, or
“exercised coercive power or has provided such significant encouragement, either overt or covert,
that the choice must in law be deemed to be that of the State.” Blum v. Yaretsky, 457 U.S. 991, 993
(1982). A court determines, under the nexus test, whether there is a sufficiently close nexus between
the state and the challenged conduct, such that the conduct “may be fairly treated as that of the state
itself.” Jackson v. Metro. Edison Co., 419 U.S. at 351. “Private use of state-sanctioned private
remedies or procedures does not rise to the level of state action. . . . But when private parties make
use of state procedures with the overt, significant assistance of state officials, state action may be
found.” Tulsa Professional Collection Servs., Inc. v. Pope, 485 U.S. 478, 486 (1988)(internal
citations omitted).
Under the symbiotic-relationship test, state action is present if the state “has so far insinuated
itself into a position of interdependence” with a private party that “it must be recognized as a joint
participant in the challenged activity.” Burton v. Wilmington Parking Authority, 365 U.S. 715, 725,
(1961). “[E]xtensive regulation, receipt of substantial state funds, and the performance of important
public functions do not necessarily establish the kind of symbiotic relationship between the [state]
and a private [party] that is required for state action.” Gallagher v. Neil Young Freedom Concert, 49
F.3d at 1451.
The applicable decisions clearly establish no bright-line rule for determining whether
a symbiotic relationship exists between a government agency and a private entity.
Questions as to how far the state has insinuated itself into the operations of a
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particular private entity and when, if ever, the operations of a private entity become
indispensable to the state are matters of degree.
Gallagher v. Neil Young Freedom Concert, 49 F.3d at 1452.
State action exists under the joint-action test if the private party is a “willful participant in
joint action with the State or its agents.” Dennis v. Sparks, 449 U.S. 24, 27 (1980). Courts look to
“whether state officials and private parties have acted in concert in effecting a particular deprivation
of constitutional rights.” Gallagher v. Neil Young Freedom Concert, 49 F.3d at 1453. “[I]f there is a
substantial degree of cooperative action between state and private officials . . . or if there is overt and
significant state participation, in carrying out the deprivation of the plaintiff's constitutional rights,
state action is present.” Gallagher v. Neil Young Freedom Concert, 49 F.3d at 1454 (internal
quotation marks and citations omitted). Joint participation can also take the form of a conspiracy
between public and private actors; in such cases, the plaintiff must show that the public and private
actors shared a common, unconstitutional goal. See Sigmon v. CommunityCare HMO, Inc., 234
F.3d 1121, 1126 (10th Cir. 2000). Even a conspiracy claim requires a sufficient level of state
involvement to constitute joint participation in the unconstitutional actions. See Soldal v. Cook Cty.,
506 U.S. 56, 60 n.6 (1992). The Tenth Circuit has previously dismissed constitutional claims against
a private individual where the plaintiff did not give specific facts showing a conspiracy evidencing
state action. See Martinez v. Winner, 771 F.2d 424, 445 (10th Cir.1985)(“Beyond the bare
conclusory allegation that [the defendant], a private citizen, conspired with the other defendants to
deprive plaintiff of his constitutional and civil rights, no facts are stated indicating that [the
defendant] did anything.”).
In Gallagher v. Neil Young Freedom Concert, the Tenth Circuit surveyed several instances in
which courts have found action “under color of state law” where governmental and private parties
have acted together in joint-action:
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We have applied the joint action test in several cases involving allegations that
private citizens acted in concert with police officers in making arrests. In both Carey
v. Continental Airlines Inc., 823 F.2d 1402 (10th Cir. 1987), and Lee v. Town of
Estes Park, 820 F.2d 1112 (10th Cir. 1987), we held that citizens who made
complaints to police officers that resulted in arrests were not state actors. We found
nothing in the record in either case from which we could infer that the allegedly
unconstitutional arrests “resulted from any concerted action, whether conspiracy,
prearranged plan, customary procedure, or policy that substituted the judgment of a
private party for that of the police or allowed a private party to exercise state power.”
Carey, 823 F.2d at 1404. In both cases, the record indicated that the police officers
had made an independent decision to make the challenged arrest. In contrast, in
Lusby v. T.G. & Y. Stores, Inc., 749 F.2d 1423, 1429 (10th Cir. 1984), cert. denied,
474 U.S. 818, 106 S. Ct. 65, 88 L.Ed.2d 53 (1985), we concluded that a store security
guard who reported a suspected shoplifter to the police was a state actor. We noted
that the officer that made the arrest did not make an independent investigation but
relied on the judgment of the security guard. In Coleman v. Turpen, 697 F.2d 1341
(10th Cir. 1982) (per curiam), we applied the joint action test by focusing on the
manner in which the alleged constitutional deprivation was carried out. There, the
plaintiff challenged the seizure and sale of his property and named as defendants not
only state officials but also the wrecking company that towed his truck and
subsequently sold it. We found the company to be a state actor because it had
“jointly participated in seizing the truck by towing it away” and because the
company’s sale of the plaintiff's property was “an integral part of the deprivation.”
Id. at 1345.
Gallagher v. Neil Young Freedom Concert, 49 F.3d at 1453-56. The Tenth Circuit noted that, “just
as with the other tests for state action, the mere acquiescence of a state official in the actions of a
private party is not sufficient.” 49 F.3d at 1453. The Tenth Circuit ruled that the joint-action test
can be satisfied where police are involved in cooperative action with a private party when “the police
have substantially assisted in the allegedly wrongful conduct.” 49 F.3d at 1455. Joint participation
typically arises when the authorities agree to facilitate private parties’ acts that, if a state conducted,
would be unconstitutional, through affirmative action. See Soldal v. Cook Cty., 506 U.S. at 60 n.4.
2.
Commercial Speech.
The Supreme Court’s First Amendment decisions create a rough hierarchy in the
constitutional protection of speech. See Snyder v. Phelps, 562 U.S. at 452; R.A.V. v. St. Paul, 505
U.S. 377, 422 (1992)(Stevens, J. dissenting). “Core political speech occupies the highest, most
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protected position; commercial speech and nonobscene, sexually explicit speech are regarded as a
sort of second-class expression; obscenity and fighting words receive the least protection of all.”
R.A.V. v. St. Paul, 505 U.S. at 422 (Stevens, J. dissenting). Commercial speech is “speech that does
no more than propose a commercial transaction.” Va. State Bd. of Pharmacy v. Va. Citizens
Consumer Council, Inc., 425 U.S. 748, 762 (1976). See Central Hudson, 447 U.S. at 561(“The
Commission’s order restricts only commercial speech, that is, expression related solely to the
economic interests of the speaker and its audience.”). The following characteristics indicate that
speech is commercial speech: (i) if the speech is contained in an advertisement; (ii) if it is made with
an economic motive; or (iii) if it refers to a specific product. See Proctor & Gamble Co. v. Haugen,
222 F.3d 1262, 1274 (10th Cir. 2000). A representation, however, is not automatically commercial
speech because it contains one or more of the preceding characteristics. See Proctor & Gamble Co.
v. Haugen, 222 F.3d at 1274.
The Supreme Court, in Central Hudson, provided the analytical framework to determine what
kind of commercial speech is entitled to First Amendment protection. See Central Hudson, 447 U.S.
at 564. It explained:
The First Amendment’s concern for commercial speech is based on the informational
function of advertising. Consequently, there can be no constitutional objection to the
suppression of commercial messages that do not accurately inform the public about
lawful activity. The government may ban forms of communication more likely to
deceive the public than to inform it, or commercial speech related to illegal activity.
Central Hudson, 447 U.S. at 563. The government has, accordingly, the power to regulate deceptive
or commercial speech related to an illegal activity, but less power to regulate lawful and nonmisleading commercial speech. See Central Hudson, 447 U.S. at 564. Before proceeding to the
Central Hudson balancing test, a court must perform a threshold inquiry to determine whether the
speech is non-misleading and concerns lawful activity. See Central Hudson, 447 U.S. at 566. “At
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the outset, we must determine whether the expression is protected by the First Amendment. For
commercial speech to come within that provision, it at least must concern lawful activity and not be
misleading.” Central Hudson, 447 U.S. at 566. See Revo v. Disciplinary Bd. of the Supreme Court
for the State of N.M., 106 F.3d 929, 932 (10th Cir. 1997)(“Revo”).
If a court determines that the speech is commercial, lawful, and not deceptive, the Court
proceeds to a three-part balancing test. See Central Hudson, 447 U.S. at 564-66. “If the
communication is neither misleading nor related to unlawful activity . . . we ask whether the asserted
governmental interest is substantial. . . . [W]e must [next] determine whether the regulation directly
advances the governmental interest asserted, and whether it is not more extensive than is necessary
to serve that interest.” Central Hudson, 447 U.S. at 564, 566. See Revo, 106 F.3d at 932. The
Tenth Circuit has expressed the Central Hudson test in following manner:
As a threshold inquiry under Central Hudson, we must determine whether the
particular advertisement is protected speech -- i.e., whether it concerns lawful
activity and is not misleading. If not, the speech may be freely regulated. Protected
commercial speech may also be regulated, but only if the government can show that
(1) it has a substantial state interest in regulating the speech, (2) the regulation
directly and materially advances that interest, and (3) the regulation is no more
extensive than necessary to serve the interest.
Revo, 106 F.3d at 932 (citations omitted). “[T]he regulation may not be sustained if it provides only
ineffective or remote support for the government’s purpose.” Central Hudson, 447 U.S. at 565.
In considering the threshold inquiry -- whether the speech concerns lawful activity and is not
misleading -- Supreme Court jurisprudence has drawn distinctions between misleading commercial
speech, potentially misleading commercial speech, and truthful commercial speech. See e.g., In re
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R.M.J., 455 U.S. 191, 203 (1982).23 Misleading commercial speech may be prohibited entirely
without a Central Hudson analysis. See In re R.M.J., 455 U.S. at 203.24 The Central Hudson
balancing test, however, applies when the speech is potentially misleading or when it is truthful. See
In re R.M.J., 455 U.S. at 203. See also Revo, 106 F.3d at 933. Potentially misleading speech occurs
when “the information also may be presented in a way that is not deceptive.” In re R.M.J., 455 U.S.
at 203. Commercial speech is not “potentially misleading” simply with the “rote invocation of the
words”; the party asserting that the speech is potentially misleading must “point to . . . harm that is
potentially real, not purely hypothetical.” Ibanez v. Florida Dept. of Business and Professional
Regulation, Bd. of Accountancy, 512 U.S. 136, 146 (1994). In contrast, inherently misleading
speech is “incapable of being presented in a way that is not deceptive.” Revo, 106 F.3d at 929. In
Revo, for example, the Tenth Circuit considered whether direct mailing advertisements from a
personal injury attorney “inevitably convey a false message that soliciting lawyers are more
experienced, tougher, more skillful, and better qualified than non-soliciting lawyers, notwithstanding
the fact that the letters themselves make no reference to those attributes.” Revo, 106 F.3d at 933.
The Tenth Circuit concluded that the mailings could not be inherently misleading, because the
defendants “offer[ed] no proof that some other qualified lawyer who could superbly represent
23
Although In re R.M.J., considered commercial speech “in the context of advertising for
professional services,” In re. R.M.J., 455 U.S. at 203, Courts of Appeals have applied the case to
other commercial speech contexts, see e.g., Discount Tobacco City & Lottery Inc., v. United States,
674 F.3d 509, 524 (6th Cir. 2012)(citing In re R.M.J., 455 U.S. at 203).
24
Justice Marshall subsequently suggested, more broadly, that “[s]tates may prohibit actually
or inherently misleading commercial speech entirely.” Peel v. Attorney Registration and
Disciplinary Com’n of Ill., 496 U.S. 91, 111 (1990)(Marshall, J. concurring). Whether speech is
“actually misleading” requires a separate, factual inquiry from the inherently misleading analysis,
and, if the record reveals that someone has been misled, the state can prohibit the speech entirely.
See Peel v. Attorney Registration and Disciplinary Com’n of Ill., 496 U.S. at 111. See also Revo,
106 F.3d at 933 (“In addition, the Board offers no evidence that anyone was actually deceived by
Mr. Revo’s letters.”).
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personal injury victims would nevertheless be misleading potential clients simply by sending a direct
mail solicitation.” 106 F.3d at 933. Thus, to determine whether speech is inherently misleading, the
proper inquiry is to consider whether there are any circumstances under which the speech could be
truthful; if it could possibly be truthful, the speech is not inherently misleading. See 106 F.3d at 933.
When applying the Central Hudson test, the Supreme Court and the Tenth Circuit have
identified several substantial governmental interests in regulating speech. See Central Hudson, 447
U.S. at 568 (ruling that the government has a substantial governmental interest in energy
conservation); Florida Bar v. Went For It, Inc., 515 U.S. 618, 625-26 (1995)(holding that “protecting
the privacy and tranquility of personal injury victims and their loved ones against intrusive,
unsolicited contact by lawyers” is a substantial interest); Posadas de Puerto Rico Associates v.
Tourism Co. of Puerto Rico, 478 U.S. 328, 341 (“We have no difficulty in concluding that the Puerto
Rico Legislature’s interest in the health, safety, and welfare of its citizens constitutes a ‘substantial’
governmental interest.”); Utah Licensed Beverage Ass’n v. Leavitt, 256 F.3d 1061, 1070 (10th Cir.
2001)(holding that promoting temperance and supplying revenue are substantial governmental
interests). The Supreme Court has concluded, however, that “the Government’s interest in
preserving state authority is not sufficiently substantial to meet the requirements of Central
Hudson.” Rubin v. Coors Brewing, Co., 514 U.S. 476, 486 (1995). See Matal v. Tam, 137
S. Ct. 1744, 1764 (2017)(ruling that “preventing speech expressing ideas that offend” is not a
substantial governmental interest); Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 70
(1983)(ruling that shielding citizens from offensive speech is not a substantial governmental
interest); Utah Licensed Beverage Ass’n v. Leavitt, 256 F.3d at 1070 (holding that protecting
nondrinkers from alcohol-related speech is not a substantial state interest); U.S. West, Inc. v. F.C.C.,
182 F.3d 1224, 1235 (10th Cir. 1999)(ruling that protecting dissemination of private information
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“does not necessarily rise to the level of a substantial state interest under Central Hudson”). In the
tobacco context, the Supreme Court has recognized that there is a substantial governmental interest
in preventing minors from using tobacco. See Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 555
(2001). “Unlike rational basis review, the Central Hudson standard does not permit [a court] to
supplant the precise interests put forward by the State with other suppositions.” Florida Bar v. Went
For It, Inc., 515 U.S. 618, 624 (1995)(quoting Edenfield v. Fane, 507 U.S. 761, 768 (1993)).
Central Hudson’s third step -- determining whether the speech restriction directly and
materially advances the asserted government interest -- requires more than just “mere speculation or
conjecture” that the speech restriction will advance the interest. Lorillard Tobacco Co. v. Reilly, 533
U.S. at 555. “[R]ather, a governmental body seeking to sustain a restriction on commercial speech
must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to
a material degree.” Lorillard Tobacco Co. v. Reilly, 533 U.S. at 555 (quoting Greater New Orleans,
527 U.S. 173, 188 (1999)). To satisfy the third step,
[w]e do not, however, require that “empirical data come . . . accompanied by a surfeit
of background information. . . . [W]e have permitted litigants to justify speech
restrictions by reference to studies and anecdotes pertaining to different locales
altogether, or even, in a case applying strict scrutiny, to justify restrictions based
solely on history, consensus, and “simple common sense.”
Lorillard Tobacco Co. v. Reilly, 533 U.S. at 555 (quoting Florida Bar v. Went For It, Inc., 515 U.S.
at 628). In Lorillard Tobacco Co. v. Reilly, for example, the Supreme Court considered whether a
regulation prohibiting smokeless tobacco or cigar advertising within a 1,000-foot radius of a school
or playground directly advances the governmental interest in preventing minors from using tobacco.
See 533 U.S. at 556-57. The tobacco company argued, in part, that there is no link between the
regulation and the substantial governmental interest in preventing minor tobacco use, because the
government had only identified a problem with underage cigarette smoking and not a problem with
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smokeless tobacco use. See Lorillard Tobacco Co. v. Reilly, 533 U.S. at 556-57. The company
further averred that the government could not prove that there is a causal link between advertising
and tobacco use. See 533 U.S. at 557. After considering those arguments, the Supreme Court
concluded that the regulation banning the advertising advances the governmental interest identified,
because many studies support the claim that minors’ smokeless tobacco use has increased, and other
studies demonstrate a link between advertising and a demand for smokeless tobacco products. See
533 U.S. at 557-61.
In considering the final factor -- that the regulation is no more extensive than necessary to
serve the governmental interest -- the Supreme Court has cautioned that it is not a “least-restrictivemeans requirement.” Board of Trustees of the State University of New York v. Fox, 492 U.S. 469,
478 (1989). Rather, as “commercial speech [enjoys] a limited measure of protection, commensurate
with its subordinate position in the scale of First Amendment values,” the “ample scope of
regulatory authority suggested . . . would be illusory if it were subject to a least-restrictive-means
requirement, which imposes a heavy burden on the State.” Board of Trustees of the State University
of New York v. Fox, 492 U.S. at 477 (alteration in original).
What our decisions require is a “‘fit’ between the legislature’s ends and the means
chosen to accomplish those ends,” a fit that is not necessarily perfect, but reasonable;
that represents not necessarily the single best disposition but one whose scope is “in
proportion to the interest served,” that employs not necessarily the least restrictive
means but, as we have put it in the other contexts discussed above, a means narrowly
tailored to achieve the desired objective.
Board of Trustees of State University of the New York v. Fox, 492 U.S. at 480 (citations omitted).
“It is far different, of course, from the ‘rational basis’ test used for Fourteenth Amendment equal
protection analysis.” Board of Trustees of the State University of New York v. Fox, 492 U.S. at 480.
There it suffices if the law could be thought to further a legitimate governmental
goal, without reference to whether it does so at inordinate cost. Here we require the
government goal to be substantial, and the cost to be carefully calculated. Moreover,
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since the State bears the burden of justifying its restrictions, it must affirmatively
establish the reasonable fit we require.
Board of Trustees of the State University of New York v. Fox, 492 U.S. at 480. See Utah Licensed
Beverage Ass’n v. Leavitt, 256 F.3d 1061, 1066 (10th Cir. 2001)(“Under Central Hudson, laws
restricting commercial speech are subject to an ‘intermediate’ level of scrutiny.”).
In Lorillard Tobacco Co. v. Reilly, for example, the Supreme Court determined that a
tobacco advertising ban within 1,000 feet of schools or playgrounds in Massachusetts was not
reasonably fitted to the legislature’s goal -- preventing minors’ tobacco use. See Lorillard Tobacco
Co. v. Reilly, 533 U.S. at 561. The Lorillard Tobacco Co v. Reilly Court determined that the ban
was unreasonable, because, in effect, the ban would “prevent advertising in 87% to 91% of Boston,
Worcester, and Springfield Massachusetts.” Lorillard Tobacco Co. v. Reilly, 533 U.S. at 562. The
Supreme Court reasoned:
In some geographical areas, these regulations would constitute nearly a complete ban
on the communication of truthful information about smokeless tobacco and cigars to
adult consumers. The breadth and scope of the regulations, and the process by which
the Attorney General adopted the regulations, do not demonstrate a careful
calculation of the speech interests involved.
533 U.S. at 562. It concluded, therefore, that the government “has failed to show that the outdoor
advertising regulations . . . are not more extensive than necessary to advance the State’s substantial
interest in preventing underage tobacco use.” Lorillard Tobacco Co. v. Reilly, 533 U.S. at 565.
STATE LAW REGARDING UNFAIR AND DECEPTIVE PRACTICES
1.
California Law.
The California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 (“UCL”), prohibits
“any unlawful, unfair or fraudulent act or practice and unfair, deceptive, untrue or misleading
advertising.” Cal. Bus. & Prof. Code § 17200. To bring suit under the UCL, a consumer must
demonstrate that she suffered injury in fact and lost money or property as a result of the unfair
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competition. See Kwikset Corp. v. Superior Court, 246 P.3d 877, 884 (Cal. 2011) “Under the
statute ‘there are three varieties of unfair competition: practices which are unlawful, unfair or
fraudulent.’” In re Tobacco II Cases, 207 P.3d 20, 29 (Cal. 2009). “[C]laims of deceptive
advertisements and misrepresentations” fall under the fraudulent variety of unfair competition. In re
Tobacco II Cases, 207 P.3d at 29. “[T]o state a claim under either the UCL or the false advertising
law, based on false advertising or promotional practices, ‘it is necessary only to show that members
of the public are likely to be deceived.’” In re Tobacco II Cases, 207 P.3d at 29 (quoting Kasky v.
Nike, Inc., 45 P.3d 243, 250 (Cal. 2002)). Whether the public is likely to be deceived “is judged by
the effect [the challenged conduct] would have on a reasonable consumer,” unless “the challenged
conduct targets a particular disadvantaged or vulnerable group.” Puentes v. Wells Fargo Home
Mortg., 160 Cal. App. 4th 638, 645 (2008)(citations omitted). See Ebner v. Fresh, Inc., 838 F.3d
958, 965 (9th Cir. 2016); Quelimane Co. v. Stewart Title Guaranty Co., 960 P.2d 513, 530 (Cal.
1998).
“A UCL action is equitable in nature; damages cannot be recovered. . . . We have stated
under the UCL, “[p]revailing plaintiffs are generally limited to injunctive relief and restitution.” In
re Tobacco II Cases, 207 P.3d at 29 (quoting Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d
937, 943 (Cal. 2003)).
UCL liability is subject to a safe harbor. See Cel-Tech Commc’ns, Inc. v. Los Angeles
Cellular Telephone Co., 973 P.2d 527, 551 (Cal. 1999)(“Cel-Tech”); Ebner v. Fresh, Inc., 838 F.3d
at 963. “To forestall an action under the unfair competition law, another provision must actually
‘bar’ the action or clearly permit the conduct.” Cel-Tech, 973 P.2d at 541. “Conversely, the
Legislature’s mere failure to prohibit an activity does not prevent a court from finding it unfair.”
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Cel-Tech, 973 P.2d at 542. “There is a difference between (1) not making an activity unlawful, and
(2) making that activity lawful.” Cel-Tech, 973 P.2d at 541.
2.
Colorado Law.
The Colorado Consumer Protection Act, Colo. Rev. Stat. §§ 6-1-101-115 (“CCPA”),
prohibits deceptive trade practices. See Colo. Rev. Stat. §§ 6-1-105, 6-1-113. Relevant to this
Memorandum Opinion and Order, a deceptive trade practice occurs when
in the course of the person’s business . . . the person:
(e)
Knowingly makes a false representation as to the characteristics,
ingredients, uses, benefits, alterations, or quantities of goods, food,
services, or property;
....
(g)
Represents that goods, food, services, or property are of a particular
standard, quality or grade . . . if he knows or should know they are of
another.
Colo. Rev. Stat. § 6-1-105(1)(e), (g). “A plaintiff may satisfy the deceptive trade practices
requirement of section 6-1-105(1)(e) by establishing either a misrepresentation or that the false
representation had the capacity or tendency to deceive, even if it did not.” Rhino Linings USA, Inc.
v. Roby Mountain Rhino Lining, Inc., 62 P.3d 142, 147 (Colo. 2003)(en banc). A misrepresentation
is “a false or misleading statement that induces the recipient to act or refrain from acting . . . [and] is
made ‘either with knowledge of its untruth, or recklessly and willfully made without regard to its
consequences, and with an intent to mislead and deceive the plaintiff.” Rhino Linings USA, Inc. v.
Roby Mountain Rhino Lining, Inc., 62 P.3d at 147 (quoting Parks v. Bucy, 211 P.638, 639 (Colo.
1922)). To establish liability under the CCPA, “any person,” as Colo. Rev. Stat. § 6-1-102(6)
defines, must demonstrate:
(1) that the defendant engaged in an unfair or deceptive trade practice; (2) that the
challenged practice occurred in the course of defendant’s business, vocation, or
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occupation; (3) that it significantly impacts the public as actual or potential
consumers of the defendant’s goods, services, or property; (4) that the plaintiff
suffered injury in fact to a legally protected interest; and (5) that the challenged
practice caused the plaintiff’s injury.
Hall v. Walter, 969 P.2d 224, 235 (Colo. 1998)(en banc). See Alpine Bank v. Hubbell, 555 F.3d
1097, 1112 (10th Cir. 2009).
The CCPA does not apply to “[c]onduct in compliance with the orders or rules of, or a statute
administered by, a federal, state, or local governmental agency.” Colo. Rev. Code § 6-1-106(1)(a).
“The plain meaning of the exclusion section of the [Colorado Consumer Protection Act] is that
conduct in compliance with other laws will not give rise to a cause of action under section 6-1106(1)(a).” Showpiece Homes Corp. v. Assurance Co. of America, 38 P.3d 47, 56 (Colo. 2001)(en
banc)(emphasis in original). Only activities “specifically authorized by a regulation or another
statute [are] exempt” from the safe harbor. Showpiece Homes Corp. v. Assurance Co. of America,
38 P.3d at 56.
3.
Florida Law.
The Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.204 (“FDUTPA”),
prohibits “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive
acts or practices in the conduct of any trade or commerce.” Fla. Stat. § 501.204. Trade or commerce
includes “advertising . . . or distributing . . . any good or service, or any property . . . wherever
situated.” Fla Stat. § 501.203. “[U]nder FDUTPA, the plaintiff must only establish three objective
elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages.” Carriuolo v.
General Motors Co., 823 F.3d 977, 985-86 (11th Cir. 2016). See Soper v. Tire Kingdom, Inc., 124
So. 3d 804, 806 (Fla. 2013)(Canady, J. dissenting)(“[C]onsumer claim[s] for damages under
FDUTPA . . . require[] proof of: (1) a deceptive or unfair practice; (2) causation; and (3) actual
damages.”). FDUTPA has two distinct prongs: an unfair practice prong and a deceptive prong. See
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PNR, Inc. v. Beacon Property Management, Inc., 842 So.2d 773, 777 (Fla. 2003). An unfair practice
is “one that ‘offends established public policy’ and one that is ‘immoral, unethical, oppressive,
unscrupulous or substantially injurious to consumers.’” PNR, Inc. v. Beacon Property Management,
Inc., 842 So.2d at 777. A deceptive practice “occurs if there is a representation, omission, or
practice that is likely to mislead consumers acting reasonably in the circumstances, to the
consumers’ detriment.” State v. Beach Blvd. Automotive Inc., 139 So. 3d 380 (Fla. Dist. Ct. App.
2014)(citing PNR, Inc. v. Beacon Property Management, Inc., 842 So.2d at 777). See Zlotnick v.
Premier Sales Group, Inc., 480 F.3d 1281, 1284 (11th Cir. 2007). FDUTPA does not apply to “[a]n
act or practice required or specifically permitted by federal or state law.” Fla Stat. § 501.212(1).
4.
Illinois Law.
The Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat.
505/2 (“ICFA”), prohibits
unfair or deceptive acts or practices, including but not limited to the use . . . of any
deception, fraud, . . . misrepresentation or the concealment, suppression or omission
of any material fact, with intent that others rely upon the concealment . . . in the
conduct of any trade or commerce . . . whether any person has in fact been misled,
deceived or damaged thereby.
815 Ill. Comp. Stat. 505/2. “[T]rade and commerce mean the advertising, offering for sale, sale, or
distribution of any services and any property . . . and shall include any trade or commerce directly or
indirectly affecting the people of this State.” 815 Ill. Comp. Stat. 505/(1)(f) (quotations omitted).
To sustain a claim under the ICFA, a plaintiff must show “(1) a deceptive act or practice by the
defendant, (2) the defendant’s intent that the plaintiff rely on the deception, (3) the occurrence of the
deception in a course of conduct involving trade or commerce, and (4) actual damage to the plaintiff
that is (5) a result of the deception.” De Bouse v. Bayer, 922 N.E.2d 309, 313 (Ill. 2009). See
Philadelphia Indem. Ins. Co. v. Chicago Title Ins. Co., 771 F.3d 391, 402 (7th Cir. 2014).
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The ICFA does not apply, however to “[a]ctions or transactions specifically authorized by
laws administered by any regulatory body or officer acting under statutory authority of this State or
the United States.” 815 Ill. Comp. Stat. 505/10b(1). “The plain language of section 10b(1) requires
that two separate conditions be present before a claim is barred.” Price v. Philip Morris, Inc., 848
N.E. 2d 1, 36 (Ill. 2005). “First, a regulatory body or officer must be operating under statutory
authority.” Price v. Philip Morris, Inc., 848 N.E. 2d at 36. “Second, liability under the Consumer
Fraud Act is barred by section 10b(1) only if the action or transaction at issue is ‘specifically
authorized by laws administered’ by the regulatory body.” 848 N.E. 2d at 36 (quoting 815 Ill.
Comp. Stat. 505/10b(1)). In Price v. Philip Morris, the Supreme Court of Illinois determined that the
FTC’s use of the terms “low tar” and “ultra low tar” in its reports to Congress, did not “specifically
authorize[] cigarette manufactures to use these terms in labeling or advertising.” 848 N.E. 2d at 36.
“Conduct is not specifically authorized merely because it has not been specifically prohibited.” 848
N.E. 2d at 36. Moreover, “[c]onduct is not specifically authorized merely because it has been
passively allowed to go on for a period of time without regulatory action being taken to stop it.” 848
N.E. 2d at 36. The proper inquiry, instead, is to “look to the affirmative acts or expressions of
authorization by the FTC.” 848 N.E. 2d at 36. The Supreme Court of Illinois emphasized that “[t]he
term ‘specifically’ indicates a legislative intent to require a certain degree of specificity or
particularity in the authorization,” see 848 N.E. 2d at 38, and that “mere compliance with applicable
federal regulations is not necessarily a shield against liability under the Consumer Fraud Act,” 848
N.E. 2d at 40. It concluded, however, that a regulatory body “may specifically authorize
conduct . . . without engaging in formal rulemaking” and that while authorization must be specific “it
need not be express.” 848 N.E. 2d at 42. The Supreme Court of Illinois ruled, accordingly, that an
FTC consent order “specifically authoriz[ing] all United States tobacco companies” to use “low,”
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“lower,” “reduced” and other similar words “so long as the descriptive terms are accompanied by a
clear and conspicuous disclosure of the ‘tar’ and nicotine content” barred a plaintiff’s claim under
815 Ill. Comp. Stat. 505/10b(1). 219 Ill. 2d at 265-66.
The Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. 510/2 (“IUDTPA”),
similarly prohibits deceptive practices performed “in the course of his or her business” that
(5)
represents that goods or services have . . . benefits . . . that they do not have;
....
(7)
represents that goods or services are of a particular standard [or] quality;
....
(9)
advertises goods or services with intent not to sell them as advertised; and
....
(12)
engages in any other conduct which similarly creates a likelihood of
confusion or misunderstanding.
815 Ill. Comp. Stat. 510/2(a)(5),(7),(9),(12).
IUDTPA does not apply to “conduct in compliance with orders or rules of or a statute
administered by a Federal, state or local governmental agency.” 815 Ill. Comp. Stat. 510/4(1). The
Supreme Court of Illinois, in Price v. Phillip Morris, concluded that, for the same reasons articulated
above, an FTC consent order specifically authorizing conduct bars plaintiffs’ claims under 815 Ill.
Comp. Stat. 510/4(1). See Price v. Phillip Morris, Inc., 848 N.E. 2d at 54.
Because we have concluded that the 1971 and 1995 consent orders provided specific
authorization to all industry members to engage in the conduct permitted by the
orders, these orders fall within the scope of [815 Ill. Comp. Stat. 510/4(1)], even
though [Philip Morris] was not a party to either consent order.
848 N.E. 2d at 54.
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5.
Massachusetts Law.
Massachusetts law prohibits “unfair or deceptive acts or practices in the conduct of any trade
or commerce.” Mass. Gen. Laws. Ch. 93A, § 2(a). To establish a claim under Mass. Gen. Laws.
Ch. 93A, § 2, a private plaintiff must show: “(1) that the defendant engaged in an unfair method of
competition or committed an unfair or deceptive act or practice . . . (2) a loss of money or property
suffered as a result; and (3) a causal connection between the loss suffered and the defendant’s unfair
or deceptive method, act, or practice. Auto Flat Car Crushers, Inc., 17 N.E.3d 1066, 1074-75 (Mass.
2014). The statute “does not provide [a] definition for ‘unfair practice,’ and ‘[t]he existence of
unfair acts and practices must be determined from the circumstances of each case.’” 477 Harrison
Ave., LLC v. Jace Boston, LLC, 74 N.E.3d 1237, 1247 (Mass. 2017)(quoting Commonwealth v.
Decotis, 316 N.E.2d 748, 754 (Mass. 1974)). “A practice is unfair if it is ‘within . . . the penumbra
of some common-law, statutory, or other established concept of unfairness; . . . is immoral,
unethical, oppressive, or unscrupulous; [and] . . . causes substantial injury.” Linkage Corp. v.
Trustees of Boston Univ., 679 N.E.2d 191, 209 (Mass. 1997)(alterations in original)(citations
omitted). When construing acts that are purportedly deceptive, “Massachusetts courts . . . must be
guided by interpretations of that term as found in the analogous Federal Trade Commission Act
(FTC Act), 15 U.S.C. § 45(a)(1).” Aspinall v. Philip Morris Cos., Inc., 813 N.E.2d 476, 487 (Mass.
2004).
Historically, the standard test for deception prohibited by the FTC Act was whether
the act or practice had the capacity or tendency to deceive the general public, rather
than whether it was relied on or resulted in actual deception. . . . The FTC later
clarified that test as follows: “if, first, there is a representation, omission, or practice
that, second, is likely to mislead consumers acting reasonably under the
circumstances, and third, the representation, omission, or practice is material.”
Matter of Cliffdale Assocs., Inc., 103 F.T.C. 110, 165 (1984). This standard, more
difficult to satisfy because it depends on the likely reaction of a reasonable consumer
rather than an ignoramus, appears to have been applied by Federal courts ever since.
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Aspinall v. Philip Morris Cos., Inc., 813 N.E.2d at 487. “[A]n advertisement is deceptive when it
has the capacity to mislead consumers, acting reasonably under the circumstances, to act differently
from the way they otherwise would have acted.” 813 N.E.2d at 488.
Mass. Gen. Laws. Ch. 93A has a safe harbor, which reads: “Nothing in this Chapter shall
apply to transactions or actions otherwise permitted under laws as administered by any regulatory
board or officer acting under statutory authority of the commonwealth of the United States.” Mass.
Gen. Laws. Ch. 93A, § 3.
A defendant’s burden in claiming the exemption “is a difficult one to meet. To
sustain it, a defendant must show more than the mere existence of a related or even
overlapping regulatory scheme that covers the transaction. Rather, a defendant must
show that such scheme affirmatively permits the practice which is alleged to be
unfair or deceptive.”
Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548, 561 (Mass. 2008)(quoting Fleming v.
National Union Fire Ins. Co., 837 N.E.2d 1113, 1121 (Mass. 2005)(emphasis in both). In Aspinall v.
Philip Morris, Inc., 902 N.E.2d 421 (Mass. 2009)(“Aspinall II”), the Supreme Judicial Court of
Massachusetts considered how the exemption might apply where a tobacco company argued that an
FTC consent order “‘condoned,’ ‘authorized,’ and ‘permitted’ the use of descriptors” on their
cigarette packages. Aspinall II, 902 N.E.2d at 424. Citing the Supreme Court in Altria II, the
Supreme Court of Massachusetts, noted that the 1971 consent order, which the Defendants invoked,
“only enjoined conduct” and that “a consent order is binding only on the parties to the agreement.”
902 N.E.2d at 424 (emphasis in original)(citing Altria II, 555 U.S. at 89 n.13). The Aspinall II Court
concluded, therefore, that “the defendants point to nothing approaching a showing that the FTC has
affirmatively permitted the use of descriptors.” 902 N.E.2d at 425 (footnote omitted).
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6.
Michigan Law.
The Michigan Consumer Protection Act, Mich. Comp. Laws §§ 445.901-902 (“MCPA”),
prohibits “[u]nfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade
or commerce.” Mich. Comp. Laws § 445.903. Relevant to this Memorandum Opinion and Order, it
defines the following practices as unlawful under the act:
(a)
Causing a probability of confusion or misunderstanding as to the source,
sponsorship, approval, or certification of goods or services.
....
(c)
Representing that goods or services have . . . characteristics, ingredients,
uses, benefits, or quantities that they do not have.
....
(e)
Representing that goods or services are of a particular standard, quality, or
grade, or that goods are of a particular style or model, if they are of another.
....
(g)
Advertising or representing goods or services with intent not to dispose of
those goods or services as advertised or represented.
....
(s)
Failing to reveal a material fact, the omission of which tends to mislead or
deceive the consumer, and which fact could not reasonably be known by the
consumer.
....
(z)
Charging the consumer a price that is grossly in excess of the price at which
similar property or services are sold.
Mich. Comp. Laws § 445.903(a), (c), (e), (g), (s), (z).
The MCPA does not apply, however, to “transaction[s] or conduct specifically authorized
under laws administered by a regulatory board or officer acting under statutory authority of this state
or the United States.” Mich. Comp. Laws § 445.904(1)(a). When considering whether the MCPA
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applies, a court’s focus should be directed at whether “the transaction at issue, not the alleged
misconduct, is ‘specifically authorized.’” Smith v. Globe Life Ins. Co., 597 N.W.2d 28, 37 (Mich.
1999). “When the Legislature said that transactions or conduct ‘specifically authorized’ by law are
exempt from the MCPA, it intended to include conduct the legality of which is in dispute.” 597
N.W.2d at 38.
7.
New Jersey Law.
Under the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1-56:8-206 (“NJCFA”),
“[a] consumer who can prove (1) an unlawful practice, (2) an ascertainable loss, and (3) a causal
relationship between the unlawful conduct and the ascertainable loss, is entitled to legal and/or
equitable relief, treble damages, and reasonable attorneys’ fees.” Gonzalez v. Wilshire Credit Corp.,
25 A.3d 1103, 1115 (N.J. 2011)(quotations omitted). See Harnish v. Widener University School of
Law, 833 F.3d 298, 305 (3d Cir. 2016). An unlawful practice under the NJCFA is the
use or employment by any person of any unconscionable commercial practice,
deception, fraud, false pretense, false promise, misrepresentation, or the knowing,
concealment, suppression, or omission of any material fact with intent that others
rely upon such concealment, suppression or omission, in connection with the sale or
advertisement of any merchandise or real estate, or with the subsequent performance
of such person as aforesaid, whether or not any person has in fact been misled,
deceived or damaged.
N.J. Stat. Ann. § 56:8-2. See Gonzalez v. Wilshire Credit Corp., 25 A.3d at 1115. “A practice can
be unlawful even if no person was in fact misled or deceived thereby.” Cox v. Sears Roebuck &
Co., 647 A.2d 454, 462 (N.J. 1994). The Supreme Court of New Jersey has explained that the
NJCFA “provides a private cause of action to consumers who are victimized by fraudulent practices
in the market place,” and that the statute “is intended to ‘be applied broadly in order to accomplish
its remedial purpose, namely to root out consumer fraud.’” Gonzalez v. Wilshire Credit Corp., 25
A.3d at 1114-15 (quoting Lemelledo v. Beneficial Mgmt. Corp. of Am., 696 A.2d 546, 551
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(N.J. 1997)).
“Any person who suffers any ascertainable loss of moneys or property, real or
personal, as a result of the use” of an unconscionable commercial practice may bring a lawsuit
seeking, among other things, treble damages. Gonzalez v. Wilshire Credit Corp., 25 A.3d at 1116
(emphasis omitted)(quoting N.J. Stat. Ann. § 56:8-19). Under the NJCFA, the test for deception
turns on the perception of a reasonable consumer. See Barry v. Arrow Pontiac, Inc., 494 A.2d 804,
810 (N.J. 1985)(“[W]e are dealing with whether the ad itself is misleading to the average consumer,
not whether it can later be explained to the more knowledgeable, inquisitive consumer.”)
The NJCFA is subject to a judicially created exception. See Lemelledo v. Beneficial Mgmt.
Corp. of America, 696 A.2d 546, 554 (N.J. 1997)(“Lemelledo”). There is a “presumption that the
CFA applies to covered practices, even in the face of other existing sources of regulation.”
Lemelledo, 696 A.2d at 554. “In order to overcome the presumption that the CFA applies to a
covered activity, a court must be satisfied . . . that a direct and unavoidable conflict exists between
application of the CFA and application of the other regulatory scheme or schemes.” 696 A.2d at
554.
It must be convinced that the other source or sources of regulation deal specifically,
concretely, and pervasively with the particular activity, implying a legislative intent
not to subject parties to multiple regulations that, as applied, will work at crosspurposes. We stress that the conflict must be patent and sharp, and must not simply
constitute a mere possibility of incompatibility. If the hurdle for rebutting the basic
assumption of applicability of the CFA to covered conduct is too easily overcome,
the statute's remedial measures may be rendered impotent as primary weapons in
combatting clear forms of fraud simply because those fraudulent practices happen
also to be covered by some other statute or regulation.
696 A.2d at 554.
8.
New Mexico Law.
The New Mexico Unfair Practices Act, N.M. Stat. Ann. § 57-12-3 (“NMUPA”), makes
unlawful any “[u]nfair or deceptive trade practices [or] unconscionable trade practices in the conduct
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of any trade or commerce.” N.M. Stat. Ann. § 57-12-3. The NMUPA defines the term “unfair or
deceptive trade practice” as
an act specifically declared unlawful pursuant to the Unfair Practices Act, a false or
misleading oral or written statement, visual description or other representation of any
kind knowingly made in connection with the sale, lease, rental or loan of goods or
services . . . by a person in the regular course of the person’s trade or commerce, that
may, tends to or does deceive or mislead any person.
N.M. Stat. Ann. § 57-12-2D. The statute also provides examples of conduct that could potentially
violate the NMUPA. See N.M. Stat. Ann. §§ 57-12-2D(1)-(18) (stating that “unfair or deceptive
trade practice means . . . and includes. . .”). See also Stevenson v. Louis Dreyfus Corp., 1991NMSC-051, ¶ 14, 811 P.2d 1308, 1311 (1991)(“After defining an unfair trade practice, the statute
then . . . list[s] examples of conduct which may constitute an unfair trade practice.”). Relevant to
this Memorandum Opinion and Order are the following: “(5) representing that goods or services
have . . . benefits . . . that they do not have; . . . (8) disparaging the goods . . . of another by false or
misleading representations; . . . (14)
using . . . ambiguity as to a material fact . . . if doing so
deceives or tends to deceive. N.M. Stat. Ann. § 57–12–2D.
A claim under the NMUPA has four elements:
First, the complaining party must show that the party charged made an “oral or
written statement, visual description or other representation” that was either false or
misleading. Second, the false or misleading representation must have been
“knowingly made in connection with the sale, lease, rental or loan of goods or
services in the extension of credit or . . . collection of debts.” Third, the conduct
complained of must have occurred in the regular course of the representer’s trade or
commerce. Fourth, the representation must have been of the type that “may, tends to
or does, deceive or mislead any person.”
Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 13, 811 P.2d at 1311. “The ‘knowingly
made’ requirement is met if a party was actually aware that the statement was false or misleading
when made, or in the exercise of reasonable diligence should have been aware that the statement was
false or misleading.” Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 17, 811 P.2d at 1311- 95 -
12. See Atherton v. Gopin, 2015-NMCA-003, ¶ 47, 340 P.3d 630, 640-41. Notably, a plaintiff need
not prove detrimental reliance upon the defendant’s representations. See Lohman v. DaimlerChrysler Corp., 2007-NMCA-100, ¶ 35, 166 P.3d at 1098; Smoot v. Physicians Life Ins. Co., 2004NMCA-027, ¶¶ 2, 20-23, 87 P.3d 545, 550-51. The Court has previously construed NMUPA and
has noted that “in the right circumstances, it could grant judgment as a matter of law on whether a
statement is deceptive or misleading” though “generally the question is a matter of fact.” Guidance
Endodontics, LLC v. Dentsply Int’l, Inc., 728 F. Supp. 2d 1170, 1193 (D.N.M. 2010)(Browning, J.).
The Court has also concluded that a communication can mislead even if it is not false. See Guidance
Endodontics, LLC v. Dentsply Int’l, Inc., 728 F. Supp. 2d at 1194-95.
9.
New York Law.
New York’s Consumer Protection from Deceptive Acts and Practices, N.Y. Gen. Bus.
Law §§ 349-350-F-1(“NYCPDAP”), bars “[d]eceptive acts or practices in the conduct of any
business, trade or commerce.” N.Y. Gen. Bus. Law § 349(a). To establish a NYCPDAP claim, “[a]
plaintiff . . . must prove three elements: first, that the challenged act or practice was consumer
oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury
as a result of the deceptive act.”
Stutman v. Chemical Bank, 731 N.E.2d 608, 611
(N.Y. 2000). “Whether a representation or an omission, the deceptive practice must be ‘likely to
mislead a reasonable consumer acting reasonably under the circumstances.’” Stutman v. Chemical
Bank, 731 N.E.2d at 611-612 (quoting Oswego Laborers’ Local 214 Pension Fund v. Marine
Midland Bank, 647 N.E.2d 741, 745 (N.Y. 1995)).
NYCPDAP has a safe harbor that precludes
any such action . . . that the act or practice is, or if in interstate commerce would be,
subject to and complies with the rules and regulations of, and the statutes
administered by, the federal trade commission or any official department, division,
commission or agency of the United States as such rules, regulations or statutes are
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interpreted by the federal trade commission or such department, division,
commission or agency or the federal courts.
N.Y. Gen. Bus. Law § 349(d). Additionally “[i]n such an action it shall be a complete defense that
the advertisement is subject to and complies with the rules and regulations of, and the statutes
administered by the Federal Trade Commission or any official department, division, commission or
agency of the state of New York.” N.Y. Gen. Bus. Law § 350-d.
10.
North Carolina Law.
Under North Carolina law, “unfair or deceptive acts or practices in or affecting commerce,
are declared unlawful.” N.C. Gen. Stat. § 75-1.1. “In order to establish a violation of N.C.G.S.
§ 75-1.1, a plaintiff must show: (1) an unfair or deceptive act or practice, (2) in or affecting
commerce, and (3) which proximately caused injury to plaintiffs.” Gray v. North Carolina Ins.
Underwriting Ass’n, 529 S.E.2d 676, 681 (N.C. 2000). See Bumpers v. Cmty. Bank of Northern
Virginia, 747 S.E.2d 220, 226 (N.C. 2013). “In determining whether a representation is deceptive,
its effect on the average consumer is considered.” Pearce v. American Defender Life Ins., 343
S.E.2d 174, 180 (N.C. 1986).
The Supreme Court of North Carolina has eschewed applying N.C. Gen. Stat. § 75-1.1 to
situations in which it would “create overlapping supervision, enforcement, and liability in [an] area,
which is already pervasively regulated by state and federal statutes and agencies.” HAJMM Co. v.
House of Raeford Farms, Inc., 403 S.E.2d 483, 493 (N.C. 1991). See Champion Pro Consulting
Group, Inc. v. Impact Sports Football, LLC, 845 F.3d 104, 110-111 (4th Cir. 2016). In Ellis v.
Northern Star Co., 388 S.E.2d 127 (N.C. 1990), the Supreme Court of North Carolina recognized
that, “[i]n limitation, we have held that certain transactions already subject to pervasive and intricate
statutory regulation, such as securities transactions, were not intended by the legislature to be
included within the scope of [N.C. Gen. Stat. § 75-1.1].” Ellis v. Norther Star Co., 388 S.E.2d at
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131. Construing a libel claim, the Ellis v. Northern Star Co. Court determined that such a pervasive
statutory or regulatory scheme did not exist. See 388 S.E.2d at 131.
11.
Ohio Law.
The OCSPA mandates that “[n]o supplier shall commit an unfair or deceptive act or practice
in connection with a consumer transaction.” Ohio Rev. Code Ann. § 1345.02(A). Relevant to this
Memorandum Opinion and Order “any of the following is deceptive: (1)
That the subject of a
consumer transaction has . . . performance characteristics, accessories, uses, or benefits that it does
not have; (2) That the subject of a consumer transaction is of a particular standard, quality, grade,
style prescription, or model, if it is not.” Ohio Rev. Code Ann. § 1345.02(B)(1)-(2). “The CSPA ‘is
a remedial law which is designed to compensate for traditional consumer remedies and so must be
liberally construed.’”
Whitaker v. M.T. Automotive, Inc., 855 N.E. 2d 825, 829 (Ohio
2006)(quoting Einhorn v. Ford Motor Co., 548 N.E.2d 933, 935 (Ohio 1990)). “In general, the
OCSPA defines ‘unfair or deceptive consumer sales practices’ as those that mislead consumers about
the nature of the product they are receiving.” Johnson v. Microsoft Corp., 834 N.E. 2d 791, 800
(Ohio 2005). “[C]ourts shall apply a reasonableness standard in determining whether an act amounts
to deceptive, unconscionable, or unfair conduct.” Shumaker v. Hamilton Chevrolet, Inc., 920
N.E.2d 1023, 1031 (Ohio Ct. App. 2009)(citations omitted).25
For a class-action plaintiff to state a claim under the OCSPA, the plaintiff must allege prelitigation notice. See Marrone v. Philip Morris USA, Inc., 850 N.E. 2d 31, 33 (Ohio 2006). For a
court decision to provide adequate notice, the case must involve similar industries and conduct.
25
The Court is aware that, under Erie, it is not bound to follow Court of Appeals of Ohio if
the Court concludes that the Supreme Court of Ohio would decide the issue differently. See supra
n.21. The Court will follow the Court of Appeals of Ohio’s decision in Shumaker v. Hamilton
Chevrolet, Inc., however, because the Court has found no indication that the Supreme Court of Ohio
would apply a contrary rule.
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See Marrone v. Philip Morris USA, Inc., 850 N.E. 2d at 36. See also id. (“[W]e hold that a
consumer may qualify for class-action certification . . . only if the defendant’s alleged violation of
the Act is substantially similar to an act or practice previously declared to be deceptive.”).
Ohio Rev. Code Ann. § 1345.02(A) is inapplicable if “a violation was an act or practice
required or specifically permitted by federal trade commission orders.”
Ohio Rev. Code
Ann. § 1345.11. In Marrone v. Philip Morris USA, Inc., the Supreme Court of Ohio noted that,
“although the FTC is well aware of the years of litigation and debate over cigarette manufactures’
marketing strategies, to date it has not directed manufacturers to refrain from using quantifier
adjectives -- terms such as ‘low.’ ‘lower,’ and ‘reduced’ -- in describing tar and nicotine levels in
advertisements for their cigarettes.” 850 N.E. 2d at 38.
12.
Washington Law.
The Washington Consumer Protection Act, Wash. Rev. Code §§ 19.86.010-19.86.920
(“WCPA”), prohibits “unfair or deceptive acts or practices in the conduct of any trade or
commerce.” Wash Rev. Code § 19.86.020. “The purpose of the CPA is to complement the body of
federal law governing restraints of trade, unfair competition and unfair, deceptive and fraudulent acts
and practices in order to protect the public and foster fair and honest competition.” Panag v. Farmers
Ins. Co. of Wash., 204 P.3d 885, 889 (Wash. 2008)(en banc)(citations omitted). “To prevail in a
private CPA claim, the plaintiff must prove (1) an unfair or deceptive act or practice, (2) occurring in
trade or commerce, (3) affecting the public interest, (4) injury to a person’s business or property, and
(5) causation.” Panag v. Farmers Ins. Co. of Wash., 204 P.3d at 889. “Deception exists ‘if there is a
representation, omission or practice that is likely to mislead’ a reasonable consumer.” 204 P.3d at
895 (quoting Southwest Sunsites, Inc. v. F.T.C., 785 F.2d 1431, 1435 (9th Cir. 1986)).
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The WCPA does not apply “to actions or transactions otherwise permitted, prohibited or
regulated under laws administered by . . . any other regulatory body or officer acting under statutory
authority of this state or the United States.” Wash. Rev. Code § 19.86.170. “Exemption under the
Consumer Protection Act is applied only after determining whether the specific action is permitted,
prohibited, regulated or required by a regulatory body or statute.” Vogt v. Seattle-First Nat. Bank,
817 P.2d 1364, 1370 (Wash. 1991)(en banc). “Overly broad construction of ‘permission’ may
conflict with the legislature’s intent that the Consumer Protection Act be liberally construed so that
its beneficial purposes may be served.” Vogt v. Seattle-First Nat. Bank, 817 P.2d at 1370. “The test
articulated was whether under the circumstances of a particular case, state law stands as an obstacle
to the accomplishment and execution of the full purposes and objectives of Congress.” Vogt v.
Seattle-First Nat. Bank, 817 P.2d at 1371. The Supreme Court of Washington ruled accordingly,
that the Currency Comptroller’s regulatory and supervisory authority alone did not preempt a claim
under the WCPA. See Vogt v. Seattle-First Nat. Bank, 817 P.2d at 1371.
LAW REGARDING UNJUST ENRICHMENT
“A person who is unjustly enriched at the expense of another is subject to liability in
restitution.” Restatement (Third) of Restitution and Unjust Enrichment § 1. “[T]he paradigm case
of unjust enrichment is one in which the benefit on one side of the transaction corresponds to an
observable loss on the other.” Restatement (Third) of Restitution and Unjust Enrichment § 1, cmt.
a. “The usual consequence of a liability in restitution is that the defendant must restore the benefit in
question or its traceable product, or else pay money in the amount necessary to eliminate unjust
enrichment.” Restatement (Third) of Restitution and Unjust Enrichment § 1, cmt. a.
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1.
California Law.
Under California law, “[a]n individual who has been unjustly enriched at the expense of
another may be required to make restitution.” Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., 353
P.3d 319, 326 (Cal. 2015). See Restatement (Third) of Restitution and Unjust Enrichment § 1.
“Restitution is not mandated merely because one person has realized a gain at another’s expense.”
Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., 353 P.3d at 326. “Rather, the obligation arises
when the enrichment obtained lacks any adequate legal basis and thus ‘cannot conscientiously be
retained.’” Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., 353 P.3d at 326 (quoting Restatement
(Third) of Restitution and Unjust Enrichment § 1, cmt. b). “A person is unjustly enriched if the
retention of the benefit would be unjust.” Western Steamship Lines, Inc. v. San Pedro Peninsula
Hosp., 876 P.2d 1062, 1066 (Cal. 1994). “Though this restitutionary obligation is often described as
quasi-contractual, a privity of relationship between the parties is not necessarily required.” Hartford
Cas. Ins. Co. v. J.R. Marketing, L.L.C., 353 P.3d at 326. “When a person acts simply as she would
have done in any event, out of duty or self-interest, she cannot equitably claim compensation from
anyone who merely happens to benefit as a result.” Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C.,
353 P.3d at 327.
2.
Colorado Law.
“A person is unjustly enriched when he benefits as a result of an unfair detriment to another.”
Lewis v. Lewis, 189 P.3d 1134, 1141 (Colo. 2008)(en banc)(citing Salzman v. Bacharach, 996 P.2d
1263, 1265 (Colo. 2000)(en banc)). “The proper remedy upon a finding of unjust enrichment is to
restore the harmed party ‘to the position he formerly occupied either by the return of something
which he formerly had or by the receipt of its monetary equivalent.’” Lewis v. Lewis, 189 P.3d at
1141 (quoting Restatement (First) of Restitution § 1, cmt. a). “The scope of the remedy is broad,
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cutting across both contract and tort law, with its application guided by the underlying principle of
avoiding the unjust enrichment of one party at the expense of another.” Robinson v. Colorado State
Lottery Div., 179 P.3d 998, 1007 (Colo. 2008). “[A] party claiming unjust enrichment must prove
that (1) the defendant received a benefit, (2) at the plaintiff’s expense, (3) under circumstances that
would make it unjust for the defendant to retain the benefit without commensurate compensation.”
Lewis v. Lewis, 189 P.3d at 1141. See Salzman v. Bachrach, 996 P.2d at 1266 n.2 (explaining that
the Supreme Court of Colorado “reformulated the elements of unjust enrichment . . . to remove the
test language that the defendant must appreciate and accept the benefit conferred”). Unjust
enrichment “does not depend on any contract, oral or written,” and “does not require any promise or
privity between the parties.” Salzman v. Bachrach, 996 P.2d at 1265. “A benefit denotes any form
of advantage.” Dudding v. Norton Frickey & Assocs., 11 P.3d 441, 444 (Colo. 2000). “The notion
of what is or is not unjust is an inherently malleable and unpredictable standard.” DCB Const. Co.,
Inc. v. Central City Dev. Co., 965 P.2d 115, 120 (Colo. 1998)(quotations omitted). Accordingly,
“[u]njust enrichment claims require that courts make extensive factual findings to determine whether
a party has been unjustly enriched.” Lewis v. Lewis, 189 P.3d at 1140. In analyzing the third prong,
whether the defendant was unjustly enriched, the Supreme Court of Colorado has “looked to the
intentions, expectations, and behavior of the parties to determine whether recovery in unjust
enrichment is appropriate.” Lewis v. Lewis, 189 P.3d at 1143. See Dudding v. Norton Frickey &
Assocs., 11 P.3d at 444 (“Whether injustice results often will turn on whether a party engaged in
some kind of wrongdoing.”).
“[E]quity will not act if there is a plain, speedy, adequate remedy at law.” Szaloczi v. John
R. Behrmann Revocable Trust, 90 P.3d 835, 842 (Colo. 2004). See Dudding v. Norton Frickey &
Assocs., 11 P.3d at 445 (“[C]ourts will refuse quantum meruit recovery when expressly contrary to
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the provisions of the written contract between the parties.”). “In the tort context, the recovery of
damages does not automatically lead to a conclusion that a party had an adequate legal remedy that
precludes further equitable relief.” Harris Grp., Inc. v. Robinson, 209 P.3d 1188, 1205 (Colo.
App. 2009).26 If “[t]he objectives of the two remedies are different,” such as when the plaintiff seeks
to recover both for the harm done to him and to recover the defendant’s ill-gotten gain, an unjust
enrichment claim may still lie. Harris Grp., Inc. v. Robinson, 209 P.3d at 1205.
3.
Florida Law.
“The elements of an unjust enrichment claim are ‘a benefit conferred upon a defendant by the
plaintiff, the defendant’s appreciation of the benefit, and the defendant’s acceptance and retention of
the benefit under circumstances that make it inequitable for him to retain it without paying the value
thereof.’” Fla. Power Corp. v. City of Winter Park, 887 So. 2d 1237, 1241 n.4 (Fla. 2004)(quoting
Ruck Bros. Brick, Inc. v. Kellogg & Kimsey, Inc., 668 So. 2d 205, 207 (Fla. Dist. Ct. App. 1995).
See Virgilio v. Ryland Grp., Inc., 680 F.3d 1329, 1337 (11th Cir. 2012). “[T]o prevail on an unjust
enrichment claim, the plaintiff must directly confer a benefit to the defendant.” Kopel v. Kopel, __
So. 3d __, 2017 WL 372074, at *5 (Fla. 2017)(ruling that an unjust-enrichment claim failed,
“because there was no evidence of a benefit being conferred directly to Respondents, rather than
indirectly to corporations owned by them”). “This Court is committed to the rule that where the only
relief sought by a bill in equity is one for which a plain, adequate and complete remedy at law
exists -- then a court of equity has no jurisdiction and a resort thereto is improper and unnecessary.”
Greenfield Villages v. Thompson, 44 So. 2d 679, 683 (Fla. 1950). From that principle, Courts of
26
The Court is aware that, under Erie, it is not bound to follow Court of Appeals of Colorado
if the Court concludes that the Supreme Court of Colorado would decide the issue differently. See
supra n.21. The Court will follow the Court of Appeals of Colorado’s decision in Harris Grp., Inc. v.
Robinson, however, because the Court has found no indication that the Supreme Court of Colorado
would apply a contrary rule.
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Appeal of Florida have noted that “a party may simultaneously allege the existence of an express
contract and alternatively plead a claim for unjust enrichment,” but, “[o]f course, upon a showing
that an express contract concerning the same subject matter exists, the unjust enrichment claim
necessarily fails.” Real Estate Value Co., Inc. v. Carnival Corp., 92 So. 3d 255, 263 n.2 (Fla. Dist.
Ct. App. 2012)(citing Hazen v. Cobb, 117 So. 853, 857-58 (Fla. 1928)).
4.
Illinois Law.
“The theory of unjust enrichment is based on a contract implied in law.” People ex rel.
Hartigan v. E. & E. Hauling, Inc., 607 N.E.2d 165, 177 (Ill. 1992). “To recover under this theory,
plaintiffs must show that [a] defendant voluntarily accepted a benefit which would be inequitable for
him to retain without payment.” People ex rel. Hartigan v. E. & E. Hauling, Inc., 607 N.E.2d at 177.
See HPI Health Care Servs., Inc. v. Mt. Vernon Hops., Inc., 545 N.E.2d 672, 679 (Ill. 1989)(“To
state a cause of action based on a theory of unjust enrichment, a plaintiff must allege that the
defendant unjustly retained a benefit to the plaintiff’s detriment, and that defendant’s retention of the
benefit violates the fundamental principles of justice, equity, and good conscience.”); Cleary v.
Philip Morris Inc., 656 F.3d 511, 516 (7th Cir. 2011). “Because unjust enrichment is based on an
implied contract, ‘where there is a specific contract which governs the relationship of the parties, the
doctrine of unjust enrichment has no application.’” People ex rel. Hartigan v. E. & E. Hauling, Inc.,
607 N.E.2d at 177 (quoting La Throp v. Bell Federal Savings & Loan Assoc., 370 N.E.2d 188, 195
(Ill. 1977)).
In adjudicating an unjust-enrichment claim against a tobacco company, the Seventh Circuit
recounted:
The plaintiffs’ unjust enrichment theory rests on the allegation that they had a legal
right to know about the true nature and hazards of cigarettes. The plaintiffs assert
that the defendants violated this right by failing to disclose the full truth about
cigarettes and that this failure to disclose was to the plaintiffs’ detriment; and that
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defendants’ retention of the benefit -- the cigarette revenue -- violates the
fundamental principles of justice, equity, and good conscience. It is crucial to note
that the plaintiffs do not allege that they suffered any harm, that they relied on the
defendants’ marketing, or that they would have acted differently had the defendants
been truthful about the cigarettes they were selling. In fact, not only do the plaintiffs
not make these allegations, but the plaintiffs also explicitly disavow any such
allegations, claiming that they are entirely unnecessary to support their theory of
unjust enrichment. In other words, the plaintiffs assert that their unjust enrichment
claim does not require proof of deception, causation, or actual harm with regard to
individual members of the plaintiff class.
Cleary v. Phillip Morris Inc., 656 F.3d at 518. Emphasizing that an unjust-enrichment claim “must
show a detriment -- and, significantly, a connection between the detriment and the defendant’s
retention of the benefit,” the Seventh Circuit reasoned that there was no unjust enrichment, because,
since the plaintiffs disclaim any need to allege either personal damages, deception, or
reliance with regard to any member of the class, it is difficult to see how the
defendants’ retention of the revenue paid by a consumer is to that consumer's
detriment. According to the plaintiffs, the class of people with a valid unjust
enrichment claim would include the consumer who bought cigarettes and was never
injured in any manner by his purchase. It would include the consumer who was
satisfied by his cigarette purchase and planned to continue purchasing cigarettes. It
would include the consumer who would not have acted any differently had he been
fully informed about cigarettes, but bought them anyway regardless of the
defendants’ marketing. It would include the consumer who was not deceived by the
marketing because he was personally aware of the true nature of cigarettes, but still
bought cigarettes despite their addictive and harmful nature -- or even because of it.
Cleary v. Phillip Morris Inc., 656 F.3d at 519. The Seventh Circuit noted, however, that “[t]his
would be a different case if there was a greater connection between the defendants’ retention of the
cigarette revenue and a detriment to the plaintiffs. For example, . . . if the revenue was obtained by
deceiving the plaintiffs.” Clearly v. Philip Morris, 656 F.3d at 519.
5.
Massachusetts Law.
“A plaintiff asserting a claim for unjust enrichment must establish not only that the defendant
received a benefit, but also that such a benefit was unjust, ‘a quality that turns on the reasonable
expectations of the parties.’”
Metropolitan Life Ins. Co. v. Cotter, 984 N.E.2d 835, 850
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(Mass. 2013)(quoting Global Investors Agent Corp. v. National Fire Ins. Co., 927 N.E.2d 480, 494
(Mass. App. Ct. 2010)). “The injustice of the enrichment or detriment in quasi-contract equates with
the defeat of someone’s reasonable expectations.” Metropolitan Life Ins. Co. v. Cotter, 984
N.E.2d at 850 (citation omitted). “Considerations of equity and morality play a large part in
constructing a quasi contract.” Salamon v. Terra, 477 N.E.2d 1029, 1031 (Mass. 1985). “An
equitable remedy for unjust enrichment is not available to a party with an adequate remedy at law.”
Santagate v. Tower, 833 N.E.2d 171, 176 (Mass. App. Ct. 2005).27 See Massachusetts Eye and Ear
Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 234 (1st Cir. 2005)(“Unjust enrichment
provides an equitable stopgap for occasional inadequacies in contractual remedies at law.”); In re
Lupron
Marketing
and
Sales
Practices
Litig.,
F. Supp. 2d
148,
182
(D.
Mass. 2003)(Stearns, J.)(“[W]here a plaintiff has an adequate remedy at law, a claim of unjust
enrichment is unavailable.”).
6.
Michigan Law.
“Even though no contract may exist between two parties, under the equitable doctrine of
unjust enrichment, ‘[a] person who has been unjustly enriched at the expense of another is required
to make restitution to the other.’” Kammer Asphalt Paving Co., Inc. v. East China Tp. Schools, 504
N.W.2d 635, 640 (Mich. 1993)(quoting Restatement (First) of Restitution § 1). “Unjust enrichment
is defined as the unjust retention of ‘money or benefits which in justice and equity belong to
another.’” Tkachik v. Mandeville, 790 N.W.2d 260, 266 (Mich. 2010)(quoting McCreary v. Shields,
52 N.W.2d 853, 855 (Mich. 1952)). “A claim alleging unjust enrichment requires that a plaintiff
27
The Court is aware that, under Erie, it is not bound to follow the Appeals Court of
Massachusetts if it concludes that the Supreme Judicial Court of Massachusetts would decide the
issue differently. See supra n.21. The Court will follow the Appeals Court of Massachusetts’
decision in Santagate v. Tower, however, because the Court has found no indication that the
Supreme Judicial Court of Massachusetts would apply a contrary rule.
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establish (1) the receipt of a benefit by the defendant from the plaintiff and (2) an inequity resulting
to the plaintiff because of the retention of the benefit by the defendant.” Landstar Express America,
Inc. v. Nexteer Automotive Corp., 900 N.W.2d 650, 657 (Mich. Ct. App. 2017)(citation omitted).28
“Because this doctrine vitiates normal contract principles, the courts employ the fiction with caution,
and will never permit it in cases where contracts, implied in fact, must be established, or substitute
one promisor or debtor for another.” Kammer Asphalt Paving Co., Inc. v. East China Tp. Schools,
504 N.W.2d at 640 (quotations omitted). “[L]egislative action that provides an adequate remedy by
statute precludes equitable relief.” Tkachik v. Mandeville, 790 N.W.2d at 265.
7.
New Jersey Law.
“To establish a claim for unjust enrichment, ‘a plaintiff must show both that defendant
received a benefit and that retention of that benefit without payment would be unjust.’” Lliadis v.
Wal-Mart Stores, Inc., 922 A.2d 710, 723 (N.J. 2007)(quoting VRG Corp. v. GKN Realty Corp., 641
A.2d 519, 526 (N.J. 1994)). See Thieme v. Aucoin-Thieme, 151 A.3d 545, 557 (N.J. 2016). “That
quasi-contract doctrine also ‘requires that plaintiff show that it expected remuneration from the
defendant at the time it performed or conferred a benefit on defendant and that the failure of
remuneration enriched defendant beyond its contractual rights.’” Lliadis v. Wal-Mart Stores, Inc.,
922 A.2d at 723 (quoting VRG Corp. v. GKN Realty Corp., 641 A.2d at 526). “[E]quitable
principles of estoppel or unjust enrichment . . . cannot be invoked to subvert [a] statutory scheme.”
Slurzberg v. City of Bayonne, 148 A.2d 171, 176 (N.J. 1959). “It is a well settled rule that an
28
The Court is aware that, under Erie, it is not bound to follow the Court of Appeals of
Michigan if it concludes that the Supreme Court of Michigan would decide the issue differently. See
supra n.21. The Court will follow the Court of Appeals of Michigan’s decision in Landstar Express
America, Inc. v. Nexteer Automotive Corp., however, because the Court has found no indication that
the Supreme Court of Michigan would apply a contrary rule.
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express contract excludes an implied one.” C.B. Snyder Realty Co. v. National Newark & Essex
Banking Co. of Newark, 101 A.2d 544, 553 (N.J. 1953).
8.
New Mexico Law.
To prevail in unjust enrichment, “one must show that: (1) another has been knowingly
benefitted at one’s expense (2) in a manner such that allowance of the other to retain the benefit
would be unjust.” Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051, ¶ 11, 3 P.3d at 698.29
Equitable claims are not available if there is an adequate remedy at law. See Gen. Tel. Co. of the Sw.
v. State Tax Comm’n, 1962-NMSC-005, ¶ 18, 367 P.2d 711, 715. See Sims v. Sims, 1996-NMSC078, ¶ 28, 930 P.2d 153, 159 (“[E]quity will not act if there is a complete and adequate remedy at
law”). Additionally, the “hornbook rule [is] that quasi-contractual remedies . . . are not to be created
when an enforceable express contract regulates the relations of the parties with respect to the
disputed issue.” Elliott Industries Ltd. P’ship v. BP America Production Co., 407 F.3d, 1091, 1117
(10th Cir. 2005)(“Elliott Indus.”).30 In Elliott Indus., for example, the Tenth Circuit held that the
plaintiffs’ leases with ConocoPhillips that defined ConocoPhillips’ royalty obligations preluded the
plaintiffs’ claims that ConocoPhillips’ royalty payment practices unjustly enriched it at the plaintiffs’
expense. See 407 F.3d at 1117. The plaintiffs contended that the leases did not preclude their
29
The Court is aware that, under Erie, it is not bound to follow the Court of Appeals of New
Mexico if it concludes that the Supreme Court of New Mexico would decide the issue differently.
See supra n.21. The Court will follow the Court of Appeals of New Mexico’s decision in Ontiveros
Insulation Co. v. Sanchez, however, because the Court has found no indication that the Supreme
Court of New Mexico would apply a contrary rule.
30
As the Tenth Circuit has explained, “when a panel of this Court has rendered a decision
interpreting state law, that interpretation is binding on district courts in this circuit, and on
subsequent panels of this Court, unless an intervening decision of the state’s highest court has
resolved the issue.” Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir.2003). The Court
has critiqued the Elliott Indus. decision in the past, though on a different legal issue, and concluded
that the Supreme Court of New Mexico would follow a different path. See Anderson Living Trust v.
WPX Energy Production, LLC, 312 F.R.D. 620, 625-630 (D.N.M. 2015)(Browning, J.) The Court
reiterates that interpretation here, though not on the issue quoted above.
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unjust-enrichment claim, because they did not contain an express contractual provision covering
ConocoPhillips’ deduction of a thirty-nine percent processing fee from the plaintiffs’ royalty
payments. See 407 F.3d at 1117. The Tenth Circuit reasoned, however, that, although “the contracts
may not delineate any specific deductions,” the leases “control how royalties are to be paid.” 407
F.3d at 1117. The Tenth Circuit concluded, therefore, that the district court properly granted
ConocoPhillips summary judgment on the plaintiffs’ unjust-enrichment claim, because “the claim
for underpayment of royalties is grounded in the parties’ contractual relationships.” 407 F.3d at
1117.
9.
New York Law.
Unjust enrichment is “a quasi-contract claim and contemplates an obligation imposed by
equity to prevent injustice, in the absence of an actual agreement between the parties.” Georgia
Malone & Co., Inc. v. Rieder, 973 N.E.2d 743, 746 (N.Y. 2012)(citations omitted). “[I]n order to
adequately plead such a claim, the plaintiff must allege that (1) the other party was enriched, (2) at
that party’s expense, and (3) that it is against equity and good conscience to permit the other party to
retain what is sought to be recovered.” Georgia Malone & Co., Inc. v. Rieder, 973 N.E.2d at 746.
See Mandarin Trading Ltd. v. Wildenstein, 944 N.E.2d 1104, 1110 (N.Y. 2011). “[A] plaintiff
cannot succeed on an unjust enrichment claim unless it has a sufficiently close relationship with the
other party.” Georgia Malone & Co., Inc. v. Rieder, 973 N.E.2d at 746. See Mandarin Trading Ltd.
v. Wildenstein, 944 N.E.2d at 1110-11 (“Mandarin’s unjust enrichment claim fails for the same
deficiency as its other claims -- the lack of allegations that would indicate a relationship between the
parties.”). “A plaintiff need not,” however, “be in privity with the defendant to state a claim for
unjust enrichment.” Sperry v. Crompton Corp., 863 N.E.2d 1012, 1018 (N.Y. 2007). Unjustenrichment claims fail when a plaintiff has an adequate legal remedy. See Samiento v. World Yacht
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Inc., 883 N.E.2d 990, 996 (N.Y. 2008). The Court of Appeals of New York has explained that
“typical” unjust-enrichment cases “are those in which the defendant, though guilty of no
wrongdoing, has received money to which he or she is not entitled.” Corsello v. Verizon New York,
Inc., 967 N.E.2d 1177, 1185 (N.Y. 2012). “An unjust enrichment claim is not available where it
simply duplicates, or replaces, a conventional contract or tort claim.” Corsello v. Verizon New
York, Inc., 967 N.E.2d at 1185.
10.
North Carolina Law.
Under North Carolina law, unjust enrichment is established when “a party [has] conferred a
benefit on the other party,” the benefit is measurable, is not gratuitous, and is not “conferred by an
interference in the affairs of the other party in a manner that is not justified in the circumstances.”
Booe v. Shadrick, 369 S.E.2d 554, 556 (N.C. 1988). See Wright v. Wright, 289 S.E.2d 347, 351
(N.C. 1982). An unjust-enrichment claim “is neither in tort nor contract,” but lies in “quasi-contract
or a contract implied in law.” Booe v. Shadrick, 369 S.E.2d at 556. “The court’s equitable
intervention is obviated when an adequate remedy at law is available to the plaintiff.” Embree
Const. Group, Inc. v. Rafcor, Inc., 411 S.E.2d 916, 920 (N.C. 1992). “Only in the absence of an
express agreement of the parties will courts impose a quasi contract or a contract implied in law in
order to prevent an unjust enrichment.” Whitfield v. Gilchrist, 497 S.E.2d 412, 415 (N.C. 1998).
11.
Ohio Law.
“Unjust enrichment occurs when a person ‘has and retains money or benefits which in justice
and equity belong to another.’”
Johnson v. Microsoft Corp., 834 N.E.2d 791, 799 (Ohio
2005)(quoting Hummel v. Hummel, 14 N.E.2d 923, 927 (Ohio 1938)). An unjust-enrichment
claim’s purpose “is not to compensate the plaintiff for any loss or damage suffered by him but to
compensate him for the benefit he has conferred on the defendant.” Johnson v. Microsoft Corp., 834
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N.E. at 799. “[A]n indirect purchaser cannot assert a common-law claim for restitution and unjust
enrichment against a defendant without establishing that a benefit had been conferred upon that
defendant by the purchaser.” Johnson v. Microsoft Corp., 834 N.E. at 799 (ruling that a defendant is
not unjustly enriched where there was no economic transaction between the plaintiff and the
defendant). “To bring a cause within the jurisdiction of a court of equity, it is requisite that the
primary right involved be an equitable right as distinguished from a legal right, or that the remedy at
law as to the right involved is not full, adequate and complete.” State ex rel. Lien v. House, 58
N.E.2d 675, 678 (Ohio 1944).
12.
Washington Law.
“Unjust enrichment occurs when one retains money or benefits which in justice and equity
belong to another.” Young v. Young, 191 P.3d 1258, 1262 (Wash. 2008)(en banc)(citation omitted).
Under Washington law, unjust enrichment exists when: “(1) the defendant receives a benefit, (2) the
received benefit is at the plaintiff’s expense, and (3) the circumstances make it unjust for the
defendant to retain the benefit without payment.” Young v. Young, 191 P.3d at 1262. “Equitable
relief is available only if there is no adequate legal remedy.” Orwick v. City of Seattle, 692 P.2d
793, 796 (Wash. 1984). In Seattle Professional Engineering Employees Association v. Boeing Co.,
991 P.2d 1126 (Wash. 2000)(en banc), for example, the Supreme Court of Washington determined
that the plaintiffs “are not entitled to pursue a remedy in equity” where they have an available
statutory remedy. Seattle Professional Engineering Employees Association v. Boeing Co., 991 P.2d
at 1134.
LAW REGARDING BREACHES OF EXPRESS WARRANTIES
Under the Uniform Commercial Code (“UCC”), there are three ways in which a seller
can make an express warranty. See UCC § 2-313(1).
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Express warranties by the seller are created as follows:
(a)
Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates
an express warranty that the goods shall conform to the affirmation or
promise.
(b)
Any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods shall conform to the
description.
(c)
Any sample or model which is made part of the basis of the bargain
creates an express warranty that the whole of the goods shall conform to
the sample or model.
UCC § 2-313(1)(a)-(c). An express warranty does not need to include “formal words such as
warrant or guarantee,” and the seller does not need to have “a specific intention to make a warranty.”
UCC § 2-313(2). Relevant to this Memorandum Opinion and Order, California, Colorado, Florida,
Illinois, New Jersey, New Mexico, New York, and North Carolina have adopted the UCC § 2-313.
See Cal. Com. Code § 2313; Colo. Rev. Stat. § 4-2-313; Fla. Stat. § 672.313; 810 Ill. Comp.
Stat. 5/2-313; N.J. Stat. Ann. § 12A:2-313; N.M. Stat. Ann. § 55–2–313; N.Y. U.C.C. Law § 2-313;
N.C. Gen. Stat. § 25-2-313.31
1.
California Law.
The Supreme Court of California has noted that “[t]he key under [the UCC] is that the
seller’s statements -- whether fact or opinion -- must become part of the basis of the bargain.”
Hauter v. Zogarts, 534 P.2d 377, 383 (Cal. 1975). It explained:
The basis of the bargain requirement represents a significant change in the law of
warranties. Whereas plaintiffs in the past have had to prove their reliance upon
specific promises made by the seller (Grinnell v. Charles Pfizer & Co. (1969) 274
Cal.App.2d 424, 440, 79 Cal.Rptr. 369), the Uniform Commercial Code requires no
such proof.
31
Other states have adopted the UCC § 2-313. The Court lists the states above, because
those states are the only states at issue on the express warranty claims in this case.
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Hauter v. Zogarts, 534 P.2d at 383-84. “Privity is not required for an action based upon an express
warranty.” Hauter v. Zogarts, 534 P.2d at 383 n.8 (Cal. 1975). “Words of conduct relevant to the
creation of an express warranty . . . shall be construed wherever reasonable as consistent with each
other.” Cal. Com. Code § 2316(1). A buyer must, “within a reasonable time after he or she
discovers or should have discovered any breach, notify the seller of breach or be barred from any
remedy.” Cal. Com. Code § 2607(3)(A).
2.
Colorado Law.
Under Colorado law, it is not “necessary for an express warranty that ‘the seller use formal
words such as ‘warrant’ or ‘guarantee’ or that he have a specific intention to make a warranty.’”
Palmer v. A.H. Robins Co., Inc., 684 P.2d 187, 208 (Colo. 1984)(quoting Colo. Rev. Stat. § 7-2313(2)). See Pegasus Helicopters, Inc. v. United Technologies Corp., 35 F.3d 507, 511 (10th
Cir. 1994). “Whether a particular statement constitutes an express warranty is generally an issue of
fact.” Palmer v. A.H. Robins Co., Inc., 684 P.2d at 208. In Palmer v. A.H. Robins Co., Inc., for
example, the Supreme Court of Colorado determined that a doctor’s representations about the greater
effectiveness of an intrauterine device over birth control pills is sufficient to establish “affirmations
of fact and product descriptions” upon which the plaintiff “relied” to constitute an express warranty.
684 P.2d at 208. But see Lutz Farms v. Asgrow Seed Co., 948 F.2d 638, 645 (10th Cir.
1991)(suggesting that, under Colorado law, reliance is not a requirement for a breach-of-expresswarranty claim).
A buyer must “notify” the seller “within a reasonable time after he discovers or should have
discovered any breach . . . or be barred from any remedy.” Colo. Rev. Stat. § 4-2-607(3)(a). See
Palmer v. A.H. Robins Co., Inc., 684 P.2d at 205. A person “notifies” a seller “by takzing such steps
as may be reasonably required to inform the other in ordinary course, whether or not the other person
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actually comes to know of it.” Colo. Rev. Stat. § 4-1-202(d); See Palmer v. A.H. Robins Co., Inc.,
684 P.2d at 205-06.
The notice requirement in a breach of warranty action serves three purposes:
(1) affording the seller an opportunity to correct any defect; (2) affording the seller
an opportunity to prepare for negotiation and litigation; and (3) providing the seller a
safeguard against stale claims being asserted after it is too late to investigate them.
Palmer v. A.H. Robins Co., Inc., 684 P.2d at 206. “Compliance with the notice requirement is
generally a condition precedent to recovery for a breach of warranty claim under the Uniform
Commercial Code.” Palmer v. A.H. Robins Co., Inc., 684 P.2d at 206. See Mullan v. Quickie
Aircraft Corp., 797 F.2d 845, 847 (10th Cir. 1986). “As long as the buyer has given notice of the
defect to his or her immediate seller, no further notification to those distributors beyond the
immediate seller is required.” Palmer v. A.H. Robins Co., Inc., 684 P.2d at 206.
3.
Florida Law.
Florida Law states:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates
to the goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise; (b) [a]ny description of
the goods which is made part of the basis of the bargain creates an express warranty
that the goods shall conform to the description; and (c) [a]ny sample or model which
is made part of the basis of the bargain creates an express warranty that the whole of
the goods shall conform to the sample or model.
Fla. Stat. § 672.313(1)(a)-(c). “The decisive test for whether a given representation is a warranty or
merely an expression of the seller’s opinion is whether the seller asserts a fact of which the buyer is
ignorant or merely states an opinion or judgment on a matter of which the seller has no special
knowledge and on which the buyer may be expected also to have an opinion and to exercise his
judgment.” Royal Typewriter Co., v. Xerographic Supplies Corp., 719 F.2d 1092, 1100 (11th Cir.
1983). To recover under a breach-of-express-warranty theory, “[t]he buyer must within a reasonable
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time after he or she discovers or should have discovered any breach notify the seller of breach.” Fla.
Stat. § 672.607(3)(a).
4.
Illinois Law.
“[A]n express warranty . . . obligates the seller to deliver goods that conform to the
affirmation, promise, description, sample or model.” Mydlach v. DaimlerChrysler Corp., 875
N.E.2d 1047, 1058 (Ill. 2007). “If the seller delivers nonconforming goods, the warranty is breached
at that time. Even if the buyer is unaware that the goods, as delivered, do not conform to the seller's
affirmation, promise, description, sample or model, the warranty has been breached.” Mydlach v.
DaimlerChrysler Corp., 875 N.E.2d at 1058 (ruling that a promise from a manufacturer to repair and
replace defective parts is not an express warranty, because such a promise “does not warrant that the
vehicle will conform to some affirmation, promise, description, sample or model”). “The warranty
arises only because the warrantor has willed it into being by making the requisite affirmation as part
of a contract to which it is an adjunct.” Collins Co., Ltd. v. Carboline Co., 532 N.E.2d 834, 838 (Ill.
1988).
A buyer “must within a reasonable time after he discovery or should have discovered any
breach notify the seller of the breach or be barred from any remedy.” 810 Ill. Comp. Stat. 5/2607(3)(a). “In general, buyers . . . must directly notify the seller of the troublesome nature of the
transaction or be barred from recovering for a breach of warranty.” Connick v. Suzuki Motor Co.,
Ltd., 675 N.E.2d 584, 589 (Ill. 1996). That general requirement is subject to the following two
exceptions: “(1) the seller has actual knowledge of the defect of the particular product; or (2) the
seller is deemed to have been reasonably notified by the filing of the buyer’s complaint alleging
breach of UCC warranty.” Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d at 589. “Only a
consumer plaintiff who suffers a personal injury may satisfy the section 2–607 notice requirement by
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filing a complaint stating a breach of warranty action against the seller.” Connick v. Suzuki Motor
Co., Ltd., 675 N.E.2d at 590.
5.
New Jersey Law.
“[T]o state a claim for breach of express warranty under New Jersey Law, [a] plaintiff must
allege (1) [the defendant] made an affirmation of fact, promise, or description about the produce; (2)
this affirmation of fact, promise, or description became part of the basis of the bargain for the
product; and (3) the product ultimately did not conform to the affirmation of fact, promise, or
description.”
In re Avandia Marketing Sales Practices & Products Liability Litig., 558
F. App’x 171, 174 (3d Cir. 2014)(unpublished).32 “[N]o specific intention to make a warranty is
necessary if part of the basis of the bargain consists of the seller’s affirmations of fact or descriptions
of the goods.” Gladden v. Cadillac Motor Car Div., General Motors Corp., 416 A.2d 394, 396 (N.J.
1980)(“Particular reliance on such statements of description or quality need not be shown.” In
Gladden v. Cadillac Motor Car Division General Motors Corporation., for example, the Supreme
Court of New Jersey determined that representations concerning tires in an owner’s manual
constituted an express warranty, because a purchaser, after reading the manual, “could reasonably
expect that the tire if used in accordance with the [company’s] instructions would not become
unrepairable or unserviceable within the first 40,000 miles of normal use.” 416 A.2d at 397-98.
6.
New Mexico Law.
Under New Mexico law, a seller expressly warrants goods in a commercial transaction when
it (i) makes an affirmation of fact or promise to the buyer “which relates to the goods and becomes
32
The Court is not bound to follow a Third Circuit decision on matters of state law, but the
Court concludes that it will follow this decision, because it has found no indication that the Supreme
Court of New Jersey would apply a contrary rule, and because the Third Circuit has more experience
with New Jersey law than the Court.
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part of the basis of the bargain”; (ii) describes the goods in a way that “is made part of the basis of
the bargain”; or (iii) provides a “sample or model which is made part of the basis of the bargain.”
N.M. Stat. Ann. § 55-2-313. “If the goods provided are not as warranted, the goods are in breach of
warranty.” Badilla v. Wal-Mart Stores East Inc., 2015-NMSC-029, ¶ 21, 357 P.3d at 941. “A breach
of warranty presents an objective claim that the goods do not conform to a promise, affirmation, or
description.” Badilla v. Wal-Mart Stores East Inc., 2015-NMSC-029, ¶ 21, 357 P.3d at 941
(quotations omitted)). “A cause of action accrues when the breach occurs, regardless of the
aggrieved party’s lack of knowledge of the breach.” Badilla v. Wal-Mart Stores East Inc., 2015NMSC-029, ¶ 21, 357 P.3d at 941.
In Bellman v. NXP Semiconductors USA, Inc., 248 F. Supp. 3d 1081 (D.N.M.
2017)(Browning, J.), for example, the Court considered whether, under New Mexico’s express
warranty standard, the defendants had made any express affirmations or representations to the
plaintiffs concerning chemical supplies purchased. See 248 F. Supp. 3d at 1153. The Court noted
that, “aside from perfunctorily alleging in the Complaint that Rinchem Co. ‘expressly’ warranted the
chemicals that it supplied,” the plaintiffs did not explain the warranty or even identify “the
warranty’s precise terms.”
248 F. Supp. 3d at 1153. The Court, accordingly, dismissed the
plaintiffs’ breach-of-express-warranty claim, because the Court could not conclude from the
plaintiffs’ conclusory allegations that the defendant had “made any express warranty.” 248
F. Supp. 3d at 1153. See Two Old Hippies, LLC v. Catch the Bus, LLC, 784 F. Supp. 2d 1200,
1210-11 (D.N.M. 2011)(Browning, J.)(ruling that the plaintiffs had plausibly alleged an express
warranty where the plaintiffs contended that the defendants had promised that two restored
Volkswagen buses purchased would be “ready to go whether for daily driver or for cross-country
trips” and “guaranteed . . . 100% satisfaction with the buses”).
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7.
New York Law.
New York does not require the plaintiff to rely on the truth of the warrant for liability to
attach. See CBS Inc. v. Ziff-Davis Pub. Co., 553 N.E.2d 997, 1000-01 (N.Y. 1990). Rather, “[t]he
right to indemnification depends only on establishing that the warranty was breached.” CBS Inc. v.
Ziff-Davis Pub. Co., 553 N.E.2d at 1001. See Galli v. Metz, 973 F.2d 145, 150 (2d Cir. 1992).
Construing and distinguishing CBS Inc. v. Ziff-Davis Publishing Co., the United States Court of
Appeals for the Second Circuit ruled: “Where a buyer closes on a contract in the full knowledge and
acceptance of facts disclosed by the seller which would constitute a breach of warranty under the
terms of the contract, the buyer should be foreclosed from later asserting the breach.” Galli v. Metz,
973 F.2d at 151. See Rogath v. Siebenmann, 129 F.3d 261, 265 (2d Cir. 1997).33 “There can be no
[express] warranty where there is no privity of contract,” but “the technical privity
requirement . . . should be dispensed with in a proper case in the interest of justice and reason.”
Randy Knitwear, Inc. v. American Cyanamid Co., 181 N.E.2d 399,401 (N.Y. 1962).
8.
North Carolina Law.
An express warranty breach “occurs when the goods fail in any respect to conform to the
express warranty given [by] the seller.” Alberti Manufactured Homes, Inc., 407 S.E.2d 819, 825
(N.C. 1991). “Absent privity of contract, there can be no recovery for breach of warranty, except in
those cases where the warranty is addressed to an ultimate consumer or user.” Kinlaw v. Long Mfg.
N.C., Inc., 259 S.E. 494, 498 (N.C. 1979).
Authority from most other jurisdictions holds that a purchaser who relies upon a
manufacturer’s representations can recover for breach of an express warranty despite
lack of privity. The bound procedure whereby the purchaser claims against the
33
The Court is not bound to follow a Second Circuit decision on matters of state law, but the
Court concludes that it will follow this decision, because it has found no indication that the Court of
Appeals of New York would apply a contrary rule, and because the Second Circuit has more
experience with New York law than the Court.
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retailer, the retailer against the distributor, and the distributor, in turn, against the
manufacturer, is unnecessarily expensive and wasteful. We find no reason to inflict
this drain on the court’s time and the litigant’s resources when there is an express
warranty directed by its terms to none other than the plaintiff purchaser.
Kinlaw v. Long Mfg. N.C., Inc., 259 S.E.at 500-01. See Alberti v. Manufactured Homes, Inc., 407
S.E. 2d at 825 (“[O]ur case law has recognized that a direct contractual relationship in the sale of the
product itself is not a prerequisite to recovery for breach of express warranty against the
manufacturer.”).
A buyer must notify the seller “within a reasonable time after he discovers or should have
discovered any breach . . . or be barred from any remedy.” N.C. Gen. Stat. § 25-2-607(3)(a). In
Maybank v. S. S. Kresge Co., 273 S.E.2d 681, 683 (N.C. 1981), the Supreme Court of North
Carolina considered whether the “filing of the suit and accompanying service upon defendant” three
years after a buyer discovers a defect falls within a reasonable time frame to give seller notice.
Maybank v. S. S. Kresge Co., 273 S.E.2d at 684. After emphasizing that reasonable time “can be
determined only by examining the particular facts and circumstances of each case,” the Supreme
Court of North Carolina noted that there were two primary policy reasons fortifying the notice
requirement. Maybank v. S. S. Kresge Co., 273 S.E.2d at 684. First, notice “enabl[es] the seller to
make efforts to cure the breach by making adjustments or replacements in order to minimize the
buyer’s damages and the seller’s liability.” Maybank v. S. S. Kresge Co., 273 S.E.2d at 684.
Second, notice “afford[s] the seller a reasonable opportunity to learn the facts so that he may
adequately prepare for negotiation and defend himself in a suit.” Maybank v. S. S. Kresge Co., 273
S.E.2d at 684. Notwithstanding these strong policy reasons, the Supreme Court of North Carolina
ruled that, “[a]lthough a delay of three years is, undoubtedly, a long time, we are unable to conclude
that it is unreasonable as a matter of law under the facts of this case.” Maybank v. S. S. Kresge Co.,
273 S.E.2d at 685. “An injured lay consumer has no reason to know, until he consults a lawyer, that
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under the terms of the Uniform Commercial Code he is required to give the seller notice that the
item sold was not satisfactory.” Maybank v. S. S. Kresge Co., 273 S.E.2d at 685. Ultimately, the
Maybank v. S.S. Kresge Co. court determined that “[f]airness to the consumer dictates that he be
given reasonable time to learn of and to comply with this requirement. While three years might be
conceivably be per se unreasonable delay in a commercial context, differing considerations
applicable in retail situations may mean that a delay of three years by a consumer in giving notice to
retail seller is within the bounds of a reasonable time.” 273 S.E.2d at 685.
LAW REGARDING PERMANENT INJUNCTIONS
To attain a permanent injunction, a plaintiff must demonstrate:
(i) that it has suffered an irreparable injury; (ii) that remedies available at law, such
as monetary damages, are inadequate to compensate for that injury; (iii) that,
considering the balance of hardships between the plaintiff and the defendant, a
remedy in equity is warranted; and (iv) that the public interest would not be disserved
by a permanent injunction.
eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006). The Tenth Circuit has formulated that
test as: “(1) actual success on the merits; (2) irreparable harm unless the injunction is issued; (3) the
threatened injury outweighs the harm that the injunction may cause the opposing party; and (4) the
injunction if issues, will not adversely affect the public interest.” Southwest Stainless, LP v.
Sappington, 582 F.3d 1176, 1191 (10th Cir. 2009). See Klein-Becker USA, LLC v. Englert, 711
F.3d 1153, 1164 (10th Cir. 2013). “The decision to grant or deny permanent injunctive relief is an
act of equitable discretion by the district court, reviewable on appeal for abuse of discretion.” eBay,
Inc. v. MercExchange, LLC, 547 U.S. at 391. See Southwest Stainless, LP v. Sappington, 582
F.3d at 1191 (“The district court’s discretion in this context is necessarily broad and a strong
showing of abuse must be made to reverse it.”). “An injunction is an extraordinary remedy to
prevent future violations, and should be used sparingly.” Copar Pumice Co., Inc. v. Morris, No. 07-
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0079, 2009 WL 5201799, at *15 (D.N.M. October 23, 2009)(Browning, J.)(citing Ute Indian Tribe
of the Uintah & Ouray Reservation v. Utah, 144 F.3d 1513, 1522 (10th Cir. 1997)).
“A district court may find irreparable harm ‘based upon evidence suggesting that it is
impossible to precisely calculate the amount of damage plaintiff will suffer.’” Southwest Stainless,
LP v. Sappington, 582 F.3d at 1191 (quoting Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1361 (10th
Cir. 1990)). In Copar Pumice Co., Inc. v. Morris, for example, the Court denied a permanent
injunction, because the plaintiff did not demonstrate that damages could not compensate the FourthAmendment search injury it had suffered. See 2009 WL 5201799, at *15. The Court further
concluded that the plaintiff had “shown few, if any, damages other than attorney’s fees and costs,”
and, accordingly, the extraordinary remedy sought -- a permanent injunction -- was inappropriate.
2009 WL 5201799, at *15.
Injunctive relief requested is subject to Article III mootness. See WildEarth Guardians v.
Public Service Co. of Colorado, 690 F.3d 1174, 1190-91 (10th Cir. 2012); State of N.N. ex rel. New
Mexico State Highway Dept. v. Goldschmidt, 629 F.2d 665, 669 (10th Cir. 1980). A case becomes
moot “when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest
in the outcome.” Cty. of L.A. v. Davis, 440 U.S. 625, 631 (1979).
Like Article III standing, mootness is oft-cited as a constitutional limitation on
federal court jurisdiction. E.g., Building & Constr. Dep’t v. Rockwell Int’l Corp., 7
F.3d 1487, 1491 (10th Cir. 1993)(“Constitutional mootness doctrine is grounded in
the Article III requirement that federal courts only decide actual, ongoing cases or
controversies). . . . But although issues of mootness often bear resemblance to issues
of standing, their conceptual boundaries are not coterminous. . . . [T]he Supreme
Court has historically recognized what are often called ‘exceptions’ to the general
rule against consideration of moot cases, as where a plaintiff’s status is ‘capable of
repetition yet evading review,’ S. Pac. Terminal Co. v. Interstate Commerce
Comm’n, 219 U.S. 498 (1911), or where a defendant has ceased the challenged
action but it is likely the defendant will ‘return to his old ways’ -- the latter often
referred to as the voluntary cessation exception, United States v. W.T. Grant Co., 345
U.S. 498, 515 (1911).
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Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239, 1242 (10th Cir. 2011). When
injunctive relief does not redress plaintiffs’ particular injuries, the injunctive relief requested is
rendered moot. See WildEarth Guardians v. Public Service Co., 690 F.3d at 1191 (citing United
States v. Vera-Flores, 496 F.3d 1177, 1180 (10th Cir. 2007)). Similarly, if the injunction would
have no present-day effect, the injunctive relief request is also rendered moot. See Utah Animal
Rights Coalition v. Salt Lake City Corp., 371 F.3d 1248, 1257 (10th Cir. 2004)(“The alleged
violation took place in 2001, the Olympics have come and gone, and neither temporary restraining
order, preliminary injunction, nor permanent injunction could have any present-day effect.”).
As already noted, mootness is subject to the voluntary-cessation exception. See Brown v.
Buhman, 822 F.3d 1151, 1166 (10th Cir. 2016). Under that exception, “voluntary cessation of
challenged conduct does not ordinarily render a case moot because a dismissal for mootness would
permit a resumption of the challenged conduct as soon as the case is dismissed.” Brown v. Buhman,
822 F.3d at 1166. “This rule is designed to prevent gamesmanship. If voluntary cessation
automatically mooted a case, ‘a defendant could engage in unlawful conduct, stop when sued to have
the case declared moot, then pick up where he left off, repeating this cycle until he achieves his
unlawful ends.” Brown v. Buhman, 822 F.3d at 1166 (quoting Already, LLC v. Nike, Inc., 568 U.S.
85, 91 (2013)). Nevertheless, a defendant’s voluntary cessation may render a case moot, if “the
defendant carries the formidable burden of showing that it is absolutely clear the allegedly wrongful
behavior could not reasonably be expected to recur.” Brown v. Buhman, 822 F.3d at 1166 (quoting
Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013)).
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LAW REGARDING PERSONAL JURISDICTION
When contested,34 the party asserting the claim has the burden of proving personal
jurisdiction. See Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir.1995). To assert personal
jurisdiction over a nonresident defendant, federal courts must satisfy state law and federal due
process. See Doering v. Copper Mountain, Inc., 259 F.3d 1201, 1209-10 (10th Cir. 2001). Under
due process, the Court’s jurisdiction exists if the defendants have “minimum contacts” with the
forum state, which may rest on specific or general personal jurisdiction, and the exercise of personal
jurisdiction must comport with “traditional notions of fair play and substantial justice.” Dudnikov v.
Chalk & Vermilion Fine Arts Inc., 514 F.3d 1063, 1070 (10th Cir. 2008)(quotation marks omitted).
See Bristol-Myers, Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S. Ct. 1773,
1779-80 (2017)(“Bristol-Myers”); Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014).
1.
Burden of Proof.
As already noted, the Plaintiff bears the burden of proving personal jurisdiction. See Wenz
v. Memery Crystal, 55 F.3d at 1505. When jurisdiction is “decided on the basis of affidavits and
other written materials, the plaintiff need only make a prima facie showing” of facts that would
support the assertion of jurisdiction. Wenz v. Memery Crystal, 55 F.3d at 1505. “The allegations in
the complaint must be taken as true to the extent they are uncontroverted by the defendant’s
affidavit.” Behagen v. Amateur Basketball Ass’n, 744 F.2d 731, 733 (10th Cir. 1984). When,
however, a defendant presents credible evidence through affidavits or other materials suggesting the
absence of personal jurisdiction, the plaintiff must come forward with sufficient evidence to create a
genuine dispute of material fact on the issue. See Doe v. Nat’l Med. Servs., 974 F.2d 143, 145 (10th
Cir.1992). Only if the plaintiff meets the obligation of contesting the credible evidence that the
34
Personal jurisdiction can be waived. See Ins. Corp. of Ireland, Ltd. v. Compagnie des
Bauxites de Guinee, 456 U.S. 694, 703 (1982).
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defendant presents does the court resolve the factual disputes in the plaintiff’s favor. See Wenz v.
Memery Crystal, 55 F.3d at 1505; Behagen v. Amateur Basketball Ass’n, 744 F.2d at 733; Clark v.
Meijer, Inc., 376 F. Supp. 2d 1077, 1082 (D.N.M.2004)(Browning, J.).
2.
Due Process and Personal Jurisdiction.
The personal-jurisdiction due process analysis is two-fold. See Fabara v. GoFit, LLC, 308
F.R.D. 380, 400 (D.N.M. 2015)(Browning, J.). First, the defendant must have “minimum contacts”
with the forum state such that it “should reasonably anticipate being haled into court there.” Burger
King Corp. v. Rudzewicz, 471 U.S. at 473-76. Second, exercising personal jurisdiction over the
defendant must comport with “traditional notions of fair play and substantial justice.” Dudnikov v.
Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1070 (quotation marks omitted). A defendant may
have “minimum contacts” with the forum state in one of two ways, providing a court with either
general or specific personal jurisdiction. Trierweiler v. Croxton & Trench Holding Corp., 90
F.3d 1523, 1532-33 (10th Cir. 1996)(citations omitted).
General jurisdiction is based on an out-of-state defendant’s “continuous and
systematic” contacts with the forum state, and does not require that the claim be
related to those contacts. Specific jurisdiction, on the other hand, is premised on
something of a quid pro quo: in exchange for “benefitting” from some purposive
conduct directed at the forum state, a party is deemed to consent to the exercise of
jurisdiction for claims related to those contacts.
Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1078. Thus, “[s]uch contacts may give
rise to personal jurisdiction over a non-resident defendant either generally, for any lawsuit, or
specifically, solely for lawsuits arising out of particular forum-related activities.” Shrader v.
Biddinger, 633 F.3d 1235, 1239 (10th Cir.2011).
For a court to exercise specific jurisdiction “‘the suit’ must ‘aris[e] out of or relat[e] to the
defendant’s contacts with the forum.” Bristol-Myers, 137 S. Ct. at 1780 (quoting Daimler AG v.
Bauman, 134 S. Ct. at 754)(alterations and emphasis in Bristol-Myers). See Bristol-Myers, 137
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S.Ct. at 1781 (“[T]here must be an ‘affiliation between the forum and the underlying controversy,
principally, [an] activity or an occurrence that takes place in the forum State.”)(quoting Goodyear
Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)(“Goodyear”)); Burger King
Corp. v. Rudzewicz, 471 U.S. at 472 (ruling that a court may assert specific jurisdiction “if the
defendant has purposefully directed his activities at residents of the forum, and the litigation results
from alleged injuries that arise out of or relate to those activities.”)(citations and quotation marks
omitted). The Tenth Circuit has characterized this inquiry as a two part test: “[F]irst . . . the out-ofstate defendant must have ‘purposefully directed’ its activities at residents in the forum state, and
second, . . . the plaintiff’s injuries must ‘arise out of’ defendant’s forum-related activities.”
Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1071. The Supreme Court has recently
emphasized that, “[f]or specific jurisdiction, a defendant’s general connections with the forum are
not enough.” Bristol-Myers, 137 S. Ct. at 1781. In the tort context, a defendant has “purposefully
directed” his activities at New Mexico or its residents when he or she has: (i) taken intentional
action; (ii) the action was “expressly aimed” at New Mexico; and (iii) the action was taken with the
knowledge that “the brunt of th[e] injury” would be felt in New Mexico. Dudnikov v. Chalk &
Vermilion Fine Arts, Inc., 514 F.3d at 1072 (quoting Calder v. Jones, 465 U.S. 783, 789-90 (1984)).
Although agreements alone are likely to be insufficient to establish minimum contacts,
“‘parties who reach out beyond one state and create continuing relationships and obligations with
citizens of another state are subject to regulation and sanctions in the other state for the
consequences of their activities.’” TH Agric. & Nutrition, LLC v. Ace Eur. Grp. Ltd., 488 F.3d
1282, 1287-88 (10th Cir.2007)(quoting Burger King Corp. v. Rudzewicz, 471 U.S. at 473, 478).
The mere foreseeability of harm occurring in a particular forum will not support a finding of
minimum contacts. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S.at 295 (holding that,
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although “an automobile is mobile by its very design and purpose,” thus indicating that it is
foreseeable that a particular automobile may cause injury in a forum state, “‘foreseeability’ alone has
never been a sufficient benchmark for personal jurisdiction under the Due Process Clause”). “[T]he
foreseeability that is critical to due process analysis is not the mere likelihood that a product will find
its way into the forum State. Rather, it is that the defendant’s conduct and connection with the
forum State are such that he should reasonably anticipate being haled into court there.” World–Wide
Volkswagen Corp. v. Woodson, 444 U.S. at 297. As the Tenth Circuit has further explained,
because “mere foreseeability” is not sufficient to establish minimum contacts, a plaintiff “must
establish . . . not only that defendants foresaw (or knew) that the effects of their conduct would be
felt in the forum state, but also that defendants undertook intentional actions that were expressly
aimed at that forum state.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1077.
General personal jurisdiction jurisprudence has “followed a markedly different trajector[y]”
than specific personal jurisdiction. Daimler AG v. Bauman, 134 S. Ct. at 757. The test for general
personal jurisdiction turns on whether the defendant is “at home” within the forum State. Daimler
AG v. Bauman, 134 S. Ct. at 760. For individuals, “the paradigm forum for the exercise of general
jurisdiction is the individual’s domicile.” Daimler AG v. Bauman, 134 S. Ct. at 760 (quoting
Goodyear, 564 U.S. at 924). For corporations, “the place of incorporation and principal place of
business are ‘paradig[m] . . . bases for general jurisdiction.” Daimler AG v. Bauman, 134 S. Ct. at
760 (quoting Goodyear, 564 U.S. at 924). In Daimler AG v. Bauman, the Supreme Court rejected an
argument that “continuous or systematic” contacts within a forum state were, in and of themselves,
sufficient to subject a corporation to general personal jurisdiction. See Daimler AG v. Bauman, 134
S. Ct. at 761-62. In so doing, the Supreme Court reemphasized that a corporation is most often
exposed to general personal jurisdiction only if that entity is incorporated in the forum state or if the
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forum state hosts the entity’s principal place of business. See Daimler AG v. Bauman, 134 S. Ct. at
761.
If [the defendant] is found to have the requisite minimum contacts with [the forum
state], then we proceed to the second step in the due process analysis: ensuring that
the exercise of jurisdiction over him does not offend “traditional notions of fair play
and substantial justice.” See World-Wide Volkswagen Corp. v. Woodson, 444 U.S.
286, 292 (1980)(quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
[The defendant] bears the burden at this stage to “present a compelling case that the
presence of some other considerations would render jurisdiction unreasonable.” See
Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1080 (10th
Cir. 2008). We consider the following five factors, . . . in deciding whether the
exercise of jurisdiction would be fair:
(1) the burden on the defendant, (2) the forum state’s interests in resolving
the dispute, (3) the plaintiff's interest in receiving convenient and effectual
relief, (4) the interstate judicial system’s interest in obtaining the most
efficient resolution of controversies, and (5) the shared interest of the several
states or foreign nations in furthering fundamental social policies.
Id. (brackets omitted); see also OMI Holdings, Inc., 149 F.3d at 1095 (applying these
factors in a case involving a Canadian corporation). “[T]he reasonableness prong of
the due process inquiry evokes a sliding scale: the weaker the plaintiff's showing on
minimum contacts, the less a defendant need show in terms of unreasonableness to
defeat jurisdiction.” TH Agric. & Nutrition, LLC, 488 F.3d at 1292 (internal
quotation marks and brackets omitted).
Marcus Food Co. v. DiPanfilo, 671 F.3d 1159, 1167 (10th Cir. 2011). The Supreme Court has
recently emphasized that, among these factors, the primary concern “is ‘the burden on the
defendant.’”
Bristol-Myers, 137 S. Ct. at 1780 (quoting World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 292 (1980)). “Assessing this burden obviously requires a court to consider
the practical problems resulting from litigating in the forum, but it also encompasses the more
abstract matter of submitting to the coercive power of a State that may have little legitimate interest
in the claims in question.” Bristol-Myers, 137 S. Ct. at 1780.
Even if the defendant would suffer minimal or no inconvenience from being forced
to litigate before the tribunals of another State; even if the forum State has a strong
interest in applying its law to the controversy; even if the forum State is the most
convenient location for litigation, the Due Process Clause, acting as an instrument of
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interstate federalism, may sometimes act to divest the State of its power to render a
valid judgment.
Bristol-Myers, 137 S. Ct. at 1780-81 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S.
at 294).
In Silver v. Brown, 678 F. Supp. 2d 1187 (D.N.M.2009)(Browning, J.), aff’d in part and
rev’d in part, 382 F. Appx. 723 (10th Cir.2010), the Court considered whether it had personal
jurisdiction over defendants who allegedly slandered, defamed, and caused the plaintiff -- Michael
Silver -- distress, by posting a blog on the internet that portrayed him in a negative light. See 678
F. Supp. 2d at 1204. The Court determined that it did not have personal jurisdiction over defendant
Jack McMullen, because Silver failed to demonstrate that McMullen “was significantly associated
with the blog or controlled it in any way.” 678 F. Supp. 2d at 1212. The Court also concluded that it
did not have personal jurisdiction over the blog post’s author -- Matthew Brown -- because he was
not domiciled in New Mexico, had not traveled to New Mexico, and did not transact business there.
See 678 F. Supp. 2d at 1211. The Court said that Brown’s blog posts similarly did not establish
personal jurisdiction, because
the blog is closer to an informative website than a commercial website. No services
are offered, and Brown is not collecting revenue from the website. Brown does not
interact with the people who post information on the blog. Brown, to the Court's
knowledge, did not solicit negative postings on the website. Further, even though
people in New Mexico can view the website, the blog is not a website that is directed
solely at the people of New Mexico. The number of people who can access the
website in New Mexico in comparison to those who are able to access the website
throughout the world, or even in the United States, according to the statistics that
Silver provided at the hearing, is nominal.
678 F. Supp. 2d at 1211-12.
On appeal, the Tenth Circuit affirmed the Court’s holding as to McMullen, but reversed its
decision as to Brown. See Silver v. Brown, 382 F. App’x. at 727-32. In an opinion that the
Honorable Monrow G. McKay, United States Circuit Judge for the Tenth Circuit, authored, and
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Judges Broby and Ebel joined, the Tenth Circuit applied the three-part test from Calder v. Jones to
conclude that the Court had personal jurisdiction over Brown. See Silver v. Brown, 382 F. App’x. at
727-32. Judge McKay first explained that the posting of the blog was “clearly an intentional act”
designed to damage the plaintiff's reputation. 382 F. App’x. at 729. Second, Judge McKay said that
Brown had “expressly aimed his blog at New Mexico,” where Silver, his business, and the majority
of his customers were located. 382 F. App’x. at 729. Judge McKay noted: “It was about a New
Mexico resident and a New Mexico company. The blog complained of Mr. Silver’s and [his
business'] actions in the failed business deal. Those actions occurred mainly in New Mexico.” 382
F. App’x. at 729-30. Third, Judge McKay explained that Brown knew Silver would suffer the brunt
of his injury in New Mexico, as the state was “unquestionably the center of his business activities.”
382 F. App’x. at 730.
In several other recent cases, the Court grappled with whether it could assert general or
specific jurisdiction over non-individual entities. In Fabara v. GoFit, LLC, 308 F.R.D. 380
(D.N.M.2015)(Browning, J.), a plaintiff -- injured by an allegedly defective exercise ball in New
Mexico -- brought suit against the manufacturer, which was incorporated and headquartered in
Oklahoma. See 308 F.R.D. at 408. The manufacturer moved to dismiss the complaint, under rule
12(b)(2), arguing that the Court lacked general jurisdiction because its contacts with New Mexico
were neither continuous nor systematic. See 308 F.R.D. at 384. The plaintiff responded with
photographs of the manufacturers’ products in several stores, arguing that the manufacturer delivered
the exercise balls into the stream of commerce with the expectation that New Mexico customers
would purchase and use them. See 308 F.R.D. at 389. The Court rejected this theory, explaining
that the manufacturer’s contacts with New Mexico were not “so systematic and continuous as to
make it essentially at home here.” 308 F.R.D. at 397. The Court noted that the manufacturer had
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almost no physical connections with New Mexico, and that its New Mexico internet sales -- roughly
$20,000.00 over nine years -- were insufficiently “substantial” to support general jurisdiction. 308
F.R.D. at 402-03.
In Diener v. Trapeze Asset Management, Inc., No. 15-0566, 2015 WL 8332933
(D.N.M.)(Browning, J.), the Court considered whether it had specific jurisdiction over a Canadian
asset-management firm that maintained a passive website, placed its name in a third party’s moneymanager listing, mailed marketing materials to New Mexico, had telephone conversations with
plaintiffs located in New Mexico, and ultimately entered into a contract with plaintiffs located in
New Mexico. See 2015 WL 8332933, at *1. The Court concluded that it did not have specific
jurisdiction for four primary reasons. See 2015 WL 8332933, at *1. First, the website was wholly
passive and did not allow visitors “the opportunity to invest or interact with the site.” 2015 WL
8332933, at *15. Second, the third-party listing was similarly passive. See 2015 WL 8332933, at
*15. Third, the Court noted that “phone calls and letters are not necessarily sufficient in themselves
to establish minimum contacts,” noting that the alleged torts occurred in Canada. 2015 WL
8332933, at *17 (quoting Benton v. Cameco Corp., 375 F.3d 1070, 1077 (10th Cir. 2004)). Fourth,
the plaintiffs reached out to the defendants to create the contractual relationship, distinguishing the
case from others finding purposeful availment. See 2015 WL 8332933, at *17 (citing Burger King
Corp. v. Rudzewicz, 471 U.S. at 473).
Finally, in Resource Associates Grant Writing & Evaluation Servs., Inc. v. Southampton
Union Free School Dist., 193 F. Supp. 3d 1200 (D.N.M. 2016)(Browning, J.), the Court considered
whether it had personal jurisdiction over a union that had never conducted any business in New
Mexico, had never sent a representative to New Mexico, and its only contacts with a New Mexico
entity were via telephone and email correspondence that the New Mexico company had initiated.
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See 193 F. Supp. 3d at 1239. Highlighting the contractual nature of the particular contacts at issue,
and that due process may be satisfied in contractual relations if the defendant “‘reache[s] out’ to the
forum state,” the Court concluded it could not exercise personal jurisdiction over the union, because
the union did not “not reach out to New Mexico to enter into an agreement”; rather, the New Mexico
entity had initiated the communications and contract. 193 F. Supp. 3d at 1241-43 (citing Burger
King Corp. v. Rudzewicz, 471 U.S. at 479-85).
ANALYSIS
First, the Court concludes that it may properly consider all of the documents the Defendants
request to be judicially noticed on a rule 12(b)(6) Motion, except the FTC Letter, because the United
States has not publically recognized that document as its own. It concludes that the remaining
documents may be properly considered, because they are either referenced in the Amended
Complaint or are matters of public record. Second, the Court concludes that it lacks personal
jurisdiction over Reynolds American vis-à-vis the Plaintiffs’ claims brought in a non-North Carolina
forum, because Reynolds American’s involvement with its subsidiary, Santa Fe Tobacco -- e.g., its
asset and board member overlap -- is not so extensive as to make Santa Fe Tobacco Reynolds
American’s alter ego. Nevertheless, it will exercise its authority under 28 U.S.C. § 1631 to transfer
the claims, instead of dismissing them. Third, the Consent Order does not preempt the Plaintiffs’
claims premised on the Safer-Cigarette Theory, because the Consent Order is not law, and an
agreement not to enforce a federal law does not evince a clear and manifest purpose to supplant all
state-law deceptive-practice claims. Fourth, the Court concludes that Natural American cigarettes’
labeling and advertising misleads a reasonable consumer under the Plaintiffs’ Safer-Cigarette and
Menthol Theories, but not under the Plaintiffs’ Unprocessed-Cigarette Theory. Decades-long
marketing campaigns have infused the terms natural and organic with safety and health connotations,
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such that the Defendants’ use of the terms would deceive a reasonable consumer. In addition,
menthol is not such a common substance that a reasonable consumer would understand that menthol
is an additive when faced with a disclosure directly to the contrary. The Court, however, dismisses
the claims to the extent that they are premised on the Unprocessed-Cigarette Theory. Fifth, the First
Amendment does not shield the Defendant from liability, in part, because the state action doctrine
precludes liability for contract-type claims, and, in part, because the descriptors plausibly deceived
the plaintiffs. Sixth, the states’ safe harbors, except for Illinois’, do not preclude liability for largely
the same reasons that the Consent Order did not preempt the Plaintiffs’ claims. The Ohio statutory
claims, nevertheless, must be dismissed, because the Plaintiffs do not satisfy OSCPA’s notice
requirement, and because consumers do not have standing to sue under ODTPA. Seventh, New
Jersey precludes unjust-enrichment relief, because the Plaintiffs cannot allege a remuneration, and
Ohio Law preclude unjust-enrichment relief, because the Plaintiffs cannot allege a direct benefit.
However, the remaining claims may be pled in the alternative. Eighth, the express warranty claims
under Florida, Illinois, and New York law must be dismissed, because the Plaintiffs’ Amended
Complaint cannot serve as the requisite notice, and must also be dismissed under Florida and Illinois
law, because the Plaintiffs lack privity with the Defendants. Ninth, the Plaintiffs’ requested
injunctive relief is not yet rendered moot, because ongoing litigation may invalidate the
Memorandum of Agreement.
I.
THE COURT MAY PROPERLY CONSIDER ALL BUT ONE DOCUMENT THAT
THE DEFENDANTS HAVE SUBMITTED WITHOUT CONVERTING THE
MOTION INTO ONE FOR SUMMARY JUDGMENT.
The Defendants move for judicial notice of eighteen items, and they are:
(1)
The 2000 FTC Complaint filed against Santa Fe Tobacco. See In the Matter
of Santa Fe Natural Tobacco Company, Inc., No. C-3952 Complaint (“FTC
Complaint”), filed November 18, 2016 (Doc. 71-1)(“First JN Motion
Exhibits”); First JN Motion Exhibits at CM/ECF 2-4.
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(2)
Natural American Spirit Advertising attached to the FTC Complaint. See In
the Matter of Santa Fe Natural Tobacco Company, Inc., No. C-3952, Exhibits
A-C, filed November 18, 2016 (Doc. 71-1)(“FTC Complaint’s exhibits”);
First JN Motion Exhibits at CM/ECF 6-8. The FTC Complaint’s exhibits
appear to be photocopied advertisings from magazines, and they advertise
Natural American cigarettes as 100% free of chemical additives and natural.
(3)
The Consent Order. See First JN Motion Exhibits at CM/ECF 10-19.
(4)
An FTC press release announcing a proposed settlement agreement between
the FTC and Santa Fe Tobacco. See FTC Accepts Settlements of Charges
that “Alternative” Cigarette Ads are Deceptive, issues April 27, 2000, filed
November 18, 2016 (Doc. 71-1)(“Press Release 1”); First JN Motion Exhibits
at CM/ECF 21-23.
(5)
An FTC press release announcing a proposed settlement agreement
concerning Reynolds American’s no-additive advertising. See FTC Accepts
Settlement of Charges that Ads for Winston “No Additive” Cigarettes are
deceptive, issued March 3, 1999, filed November 18, 2016 (Doc. 711)(“Press Release 2”); First JN Motion Exhibits at CM/ECF 25-27.
(6)
An Assurance of Voluntary Compliance between Reynolds American and
various States Attorneys General. See Assurance of Voluntary Compliance,
(dated March 1, 2010), filed November 18, 2016 (Doc. 71-1)(“Assurance of
Voluntary Compliance”); First JN Motion at Exhibits at 29-49.
(7)
Letter from Lisa Kopchik, an FTC attorney, to Robin Sommers, Santa Fe
Tobacco’s CEO, dated September 22, 1997. See Advertising for Natural
American Cigarettes File Number 972-3235, dated September 22, 1997, filed
November 18, 2016 (Doc. 71-1)(“FTC Letter”); First JN Motion Exhibits at
CM/ECF 51-57.
(8)
A Food and Drug Administration Center for Tobacco Products Warning
Letter to Santa Fe Tobacco, dated August 27, 2015. See Warning Letter,
dated; First JN Motion at CM/ECF 59-62.
(9)-(15)
Reproductions of Natural American cigarette labeling. See Natural American
Spirit Dark Green 84mm CPB at CM/ECF 64-69, dated August 13, 2015,
filed November 18, 2016 (Doc. 71-1)(“Dark Green Label”); Natural
American Spirit Blue 84mm CPB at CM/ECF 71-76, dated August 13, 2015,
filed November 18, 2016 (Doc. 71-1)(“Blue Label”); Natural American Spirit
Gold 84 mm CPB at CM/ECF 78-83, dated August 13, 2015, filed November
18, 2016 (Doc. 71-1)(“Gold Label”); Natural American Spirit Turquoise
84mm CPB at CM/ECF 85-90, dated August 13, 2015, filed November 18,
2016 (Doc. 71-1)(“Turquoise Label”); Natural American Spirit Green 84mm
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CPB at CM/ECF 92-97, dated August 13, 2015, filed November 16, 2016
(Doc. 71-1)(“Green Label”); Natural American Spirit Yellow 84 mm CPB at
CM/ECF 99-104, dated August 13, 2015, filed November 18, 2016 (Doc. 711)(“Yellow Label”); Natural American Spirit Perique Robust 84 mm CPB at
CM/ECF 106-111, dated August 13, 2015, filed November 18, 2016 (Doc.
171-1)(“Perique Label”), (collectively “Natural American Labels”); First JN
Motion Exhibits at CM/ECF 64-111.
(16)
Natural American Tobacco and Water Advertising. See Tobacco & Water
Advertisement; First JN Motion Exhibits at 113-14.
(17)
Memorandum of Agreement. See Second JN Motion at 1; Second JN Motion
Exhibit at CM/ECF 2-3.
(18)
Request for Informal Staff Guidance Regarding Santa Fe Natural Tobacco
Company’s Consent Order (FTC Dkt. No. C-3952) dated May 9, 2017, filed
May 30, 2017 (Doc. 109-1)(“Staff Guidance Request”); Third JN Motion
Exhibit at CM/ECF 2-4.
The Plaintiffs argue that items 17 and 18 are not judicially noticeable, but do not contest the first
sixteen items. See Plaintiffs’ Response in Opposition to Defendants’ Second Motion for Judicial
Notice at 2-4, filed April 6, 2017 (Doc. 97)(“Second JN Resp.”); Plaintiffs’ Response in Opposition
to Defendants’ Third Motion to Take Judicial Notice at 1-2, filed June 7, 2017 (Doc. 111)(“Third JN
Resp.”). The Court concludes that it may consider all of the documents, which the Defendants
submit, except the FTC Letter, without converting the MTD into one for summary judgment.
Initially, the Court judicially notices the FTC Complaint, the FTC Complaint’s Exhibits, the
Consent Order, Press Release 1, Press Release 2, the Assurance of Voluntary Compliance, and the
Warning Letter. The FTC Complaint, the FTC Complaint’s Exhibits, and the Consent Order are
matters of public record, so may be judicially noticed. See Hodgson v. Farmington City, 675
F. App’x 838, 840-41 (10th Cir. 2017)(unpublished)(concluding that a district court did not err “in
taking judicial notice of public records from the parties’ administrative and judicial proceedings”);
Stan Lee Media, Inc. v. Walt Disney Co., 774 F.3d 1292, 1298 n.2 (10th Cir. 2014); Stephen
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Saltzburg, Michael M. Martin & Daniel J. Capra, Federal Rules of Evidence Manual § 201.02[3] at
201-7 (10th Ed. 2011)(“The reliability of judicial records is not in question.”). Those three
documents were filed publicly in an administrative proceeding, and therefore are properly judicial
noticed. See In re Santa Fe Natural Tobacco Co., No. C-3952 (F.T.C. June 12, 2000). Independent
from that determination, those three documents are properly judicially noticed, because they are
available on a federal agency’s website. See New Mexico ex rel. Richardson v. Bureau of Land
Management, 565 F.3d 683, 702 n.22 (10th Cir. 2009)(ruling that judicial notice was proper for
information referenced on two federal agency’s websites); O’Toole v. Northrop Grumman Corp.,
499 F.3d 1218, 1215 (10th Cir. 2007)(“It is not uncommon for courts to take judicial notice of
factual information found on the world wide web.”).35 That the Court judicially notices the
documents’ existence, however, does not mean that the Court judicially notices the documents’
content for the truth of the matter asserted. See Saltzburg, Federal Rules of Evidence Manual §
201.02[3], at 201-8 (“[A] court can take judicial notice that court filings contained certain
allegations . . . , [b]ut the truth of these allegations and findings are not proper subjects of judicial
notice.”). Indeed, any party can file a document in a proceeding, but that does not mean that the
document’s contents are beyond reproach.
The Court also judicially notices Press Release 1, Press Release 2, the Assurance of
Voluntary Compliance, and the Warning Letter, because they are available on a governmental
website.36 The Court does not, however, judicially notice the FTC letter. The Court could not locate
35
See https://www.ftc.gov/sites/default/files/documents/cases/2000/06/santafecmp.htm (FTC
Complaint); https://www.ftc.gov/sites/default/files/documents/cases/2000/06/santafeexhibitsac.pdf
(FTC Complaint’s Exhibits); https://www.ftc.gov/sites/default/files/documents/cases/2000/06/sant
afe.do.htm (Consent Order).
36
See https://www.ftc.gov/news-events/press-releases/2000/04/ftc-accepts-settlements-cha
rges-alternative-cigarette-ads-are (Press Release 1); https://www.ftc.gov/news-events/press- 135 -
that document on any website, and certainly not a government website. Although the Defendants
argue that the FTC letter is a “matter of public record,” First JN Motion at 3, they do not inform the
Court where the document may be publically located. The Defendants also argue that judicial notice
is proper, because the FTC letter is an official “government document[],” First JN Motion at 3,
which appears true on the document’s face; the letter is typed on FTC letterhead, it references file
number 972-3235, and Lisa Kopchik, an FTC attorney, has signed it, FTC letter at 1, 3 (at 51, 53 on
CM/ECF). Nevertheless, the test for judicial notice is whether an adjudicative fact is “capable of
accurate and ready determination by resort to sources whose accuracy cannot reasonably be
questioned,” Fed. R. Evid. 201(b)(2), and this source could be reasonably questioned, because the
FTC has not publically acknowledged it as its document, see Duprey v. Twelfth Judicial Dist. Court,
State of New Mexico, No. 08-0756, 2009 WL 2432483, at *2 (D.N.M. July 10,
2009)(Browning, J.)(ruling that a letter from a government employee to an aggrieved subordinate
was not judicially noticeable without converting the motion to dismiss into one for summary
judgment); Abercrombie v. Aetna Health, Inc., 176 F. Supp. 3d 1202, 1213 n.13
(D. Colo. 2016)(Arguello, J.)(declining to take judicial notice of a Colorado Division of Insurance,
Department of Regulatory Agency’s letter).
releases/1999/03/ftc-accepts-settlement-charges-ads-winston-no-additive-cigarettes (Press Release
2);https://oag.ca.gov/system/files/attachments/press_releases/n1865_santa_fe_natural_tobacco_co
agreement.pdf (Assurance of Voluntary Compliance); https://www.fda.g ov/ICECI/
EnforcementActions/WarningLetters/2015/ucm459778.htm (Warning Letter). Although the
Assurance of Voluntary Compliance is from a state agency’s website, documents from those sources
are also properly judicially noticed. See New Mexico ex rel. Richardson v. Bureau of Land
Management, 565 F.3d at 702 n.22 (ruling that documents referenced in the New Mexico State
Resource Advisory Council Minutes, which were available on the agency’s website, were judicially
noticeable). In addition, the Amended Complaint references the Warning Letter, so it is also
properly considered without converting the Motion into one for Summary Judgment. See Amended
Complaint ¶¶ 36, 58, at 14, 28-29.
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The Court also concludes that it can consider the Natural American Labels and the Tobacco
& Water Advertisement without converting the motion into one for summary judgment, because the
Amended Complaint incorporates those documents by reference. The Amended Complaint, in fact,
reproduces pictures of the labeling and the advertising that the Defendants seek to introduce. See
Amended Complaint ¶¶ 40, 43, at 15, 19-21; First JN Motion at 4 (explaining that the Defendants
seek to produce more legible pictures of the labeling and the second page of an advertisement
featured in the Amended Complaint).
Moreover, Natural American cigarette’s labeling and
advertising is central to this case and the Plaintiffs have not disputed those documents’ authenticity,
so the Court may properly consider them without converting the MTD into one for summary
judgment. See Jacobsen v. Deseret Book Co., 287 F.3d at 941.
The Memorandum of Agreement is judicially noticeable. The Plaintiffs contend that the
Memorandum of Agreement cannot be a matter of public record, because it is not published in the
Federal Registry, it is not a government report, or a government press release, and it is stamped
“Confidential - Not for Public Disclosure.” Second JN Resp. at 2-3. The Defendants rejoin that, by
producing a copy of the Memorandum of Agreement in response to a Freedom of Information Act
(“FOIA”) request, the FDA made the document a matter of public record. See Second JN Reply at
1. The Court concludes that the Memorandum of Agreement is a matter of public record, despite its
confidential label and even though it is still not publically available online, because the FOIA
disclosure makes the document “capable of accurate and ready determination by resort to [a]
source[] whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). See New York
Times Co. v. U.S. Dep’t of Justice, 756 F.3d 100, 110 n.8 & 9 (2d Cir. 2014)(ruling that an official
disclosure made in response to a FOIA request typifies the kind of document judicially noticeable);
In re American Apparel, Inc. Shareholder Litig., 855 F. Supp. 2d 1043, 1064 (C.D. Cal.
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2012)(Morrow, J.)(“Because plaintiffs obtained the documents by making a FOIA request, the court
will take judicial notice of them as matters of public record.”).
The Plaintiffs also argue, however, that, even if the document is judicially noticeable, the
Defendants want the Court to judicially notice the Memorandum of Agreement’s contents for their
truth value -- “a task inappropriate at the 12(b)(6) stage.” Second JN Resp. at 4. In their MTD, the
Defendants cite the Memorandum of Agreement to support their argument that injunctive relief is
rendered moot, because they have already taken steps to the stop the actions that, purportedly, entitle
the Plaintiffs to injunctive relief. See MTD at 68-69. The Court agrees with the Plaintiffs that it
cannot consider the contents of the Memorandum of Agreement for the truth of the matters asserted
therein. See Tal v. Hogan, 453 F.3d at 1265 n.24; Saltzburg, Federal Rules of Evidence Manual §
201.02[3], at 201-8 (“[A] court can take judicial notice that court filings contained certain
allegations . . . , [b]ut the truth of these allegations and findings are not proper subjects of judicial
notice.”). The Memorandum of Agreement, however, speaks only to the parties’ intent, which has
truth value only to that intent. See Echo Acceptance Corp. v. Household Retail Servs., Inc., 267
F.3d 1068, 1088 (10th Cir. 2001)(citing United States v. Montana, 199 F.3d 947, 950 (7th
Cir. 1999)(explaining that “performative . . . utterances . . . illustrated by a promise, offer, or
demand -- commit the speaker to a course of action [and] are not within the scope of the hearsay
rule, because they do not make any truth claims”)). Within the Memorandum of Agreement, Santa
Fe Tobacco commits to removing certain terms from its labels and advertising, and the FDA
commits to “not initiating enforcement action” if Santa Fe Tobacco agrees to the Memorandum of
Agreement’s terms. Memorandum of Agreement at 1-2. The Court will not consider the
Memorandum of Agreement for its truth value.
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Finally, the Court judicially notices the Staff Guidance Request. In the document, the FTC
advises the Defendants that it cannot say whether the phrases “Tobacco Ingredients: Tobacco and
Water” and “Tobacco Filler Ingredients: Tobacco and Water” trigger the Consent Order’s disclosure
requirement, because the legal analysis turns on “an examination of the entire advertisement,” so it
cannot offer legal advice regarding the two phrases in a vacuum. Staff Guidance Request at 2. The
FTC warns, however, that those phrases likely trigger the Consent Order’s disclosure obligation.
See Staff Guidance Request at 2. The FTC also notes that, if the Defendants modified their
disclosure to “Natural American Spirit cigarettes are not safer than other cigarettes,” the FTC would
not recommend an enforcement action “as long as the disclosure was displayed clearly and
prominently.” Staff Guidance Request at 3 (emphasis in original). The Court judicially notices the
Staff Guidance Request, because it is available on the FTC’s website.37
II.
THE COURT LACKS PERSONAL JURISDICTION OVER REYNOLDS
AMERICAN WITH RESPECT TO THE PLAINTIFFS’ CLAIMS THAT WERE NOT
FILED IN NORTH CAROLINA.
The Defendants argue that the Court has jurisdiction only over those claims against Reynolds
American filed in North Carolina, because Reynolds American is headquartered and incorporated
there, and Reynolds American otherwise lacks the minimum contacts necessary for specific or
general jurisdiction in the other forums. See MTD at 71, 73-74. They also aver that the Plaintiffs
cannot impute Reynolds American’s subsidiaries’ contacts onto it, because Reynolds American does
not substantially controls its subsidiary’s day-to-day activities. See MTD at 76-77.
The Court’s jurisdiction in an MDL is coextensive with the transferor courts’ jurisdiction.
See, e.g., In re Automotive Refinishing Paint Antitrust Litig., 358 F.3d 288, 297 n.11 (3d Cir. 2004).
37
See https://www.ftc.gov/system/files/documents/advisory_opinions/letter-mary-engleassociate-director-division-advertising-practices-mark-s-brown-esq/rai-santa_fe_staff_advisory_ op
inion_and_incoming_request_5-9-17.pdf.
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Accordingly, the Court must assess personal jurisdiction with respect to the Defendants’ contacts to
the forums in which the Plaintiffs filed suit. See, e.g., In re Automotive Refinishing Paint Antitrust
Litig., 358 F.3d at 297 n.11. To assert personal jurisdiction over a nonresident defendant, federal
courts must satisfy state law and federal due process. See Doering v. Copper Mountain, Inc., 259
F.3d at 1209-10.
The Defendants argue that asserting personal jurisdiction over the claims filed against
Reynolds American outside of North Carolina would violate Due Process. See MTD at 72. The
personal-jurisdiction due process analysis is two-fold. See Fabara v. GoFit, LLC, 308 F.R.D. at 400.
A defendant must have “minimum contacts” with the forum state such that it “should reasonably
anticipate being haled into court there,” Burger King Corp. v. Rudzewicz, 471 U.S. at 473-76, and
exercising personal jurisdiction over the defendant must comport with “traditional notions of fair
play and substantial justice,” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1070
(quotation marks omitted). A defendant may have “minimum contacts” with the forum state in one
of two ways, providing a court with either general or specific personal jurisdiction. Trierweiler v.
Croxton & Trench Holding Corp., 90 F.3d at 1532-33 (citations omitted).
General jurisdiction is based on an out-of-state defendant’s “continuous and
systematic” contacts with the forum state, and does not require that the claim be
related to those contacts. Specific jurisdiction, on the other hand, is premised on
something of a quid pro quo: in exchange for “benefitting” from some purposive
conduct directed at the forum state, a party is deemed to consent to the exercise of
jurisdiction for claims related to those contacts.
Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1078.
The test for general personal jurisdiction turns on whether the defendant is “at home” within
the forum state. Daimler AG v. Bauman, 134 S. Ct. at 760. For individuals, “the paradigm forum
for the exercise of general jurisdiction is the individual’s domicile.” Daimler AG v. Bauman, 134
S. Ct. at 760 (quoting Goodyear, 564 U.S. at 924). For corporations, “the place of incorporation and
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principal place of business are ‘paradig[m] . . . bases for general jurisdiction.” Daimler AG v.
Bauman, 134 S. Ct. at 760 (quoting Goodyear, 564 U.S. at 924).
The Court agrees with the Defendants that it cannot assert general personal jurisdiction over
Reynolds American except for the Plaintiffs’ claims that were filed in North Carolina. See Daimler
AG v. Bauman, 134 S. Ct. at 760; Amended Complaint ¶¶ 12-13, 15, 18, 20-22, at 4-11 (alleging
that Herbert, Benson, Emmons, Murphy, Chavez, Horne, and Lopez filed suit in the United States
District Court for the Middle District of North Carolina). Reynolds American is a North Carolina
corporation with its principal place of business in North Carolina, so it is at home in that state and
subject to general personal jurisdiction for the claims asserted in a North Carolinian forum. See
Amended Complaint ¶ 25, at 12. The Court cannot assert general personal jurisdiction over the
claims alleged against Reynolds American originally filed in other states. See Amended Complaint
¶¶ 14, 16-17, 19, 23 at 5-9, 11.38
The Court also agrees with the Defendants that it cannot assert specific personal jurisdiction
over Reynolds American regarding the remaining Plaintiffs’ claims. The specific-jurisdiction
inquiry is also a two-part test: “[F]irst . . . the out-of-state defendant must have purposefully directed
its activities at residents in the forum state, and second, . . . the plaintiff’s injuries must arise out of’
defendant’s forum-related activities.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at
1071 (quotations omitted). See Burger King Corp. v. Rudzewicz, 471 U.S. at 472. “For specific
jurisdiction, a defendant’s general connections with the forum are not enough.” Bristol-Myers, 137
S. Ct. at 1781. In the tort context, a defendant has “purposefully directed” his activities at a state or
38
Although language in Daimler AG v. Bauman suggests that general jurisdiction over a
corporation could be asserted in states where the Defendant corporation is not incorporated or
headquartered in the state, see Daimler AG v. Bauman, 134 S. Ct. at 760-61, the Court reads Daimler
AG v. Bauman as generally foreclosing that possibility except in unusual circumstances not present
here. See Bristol-Myers, 137 S. Ct. 1780 (“[O]nly a limited set of affiliations with a forum will
render a defendant amenable to general jurisdiction in that State.”)(quotations omitted).
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its residents when he or she has: (i) taken intentional action; (ii) the action was “expressly aimed” at
the state; and (iii) the action was taken with the knowledge that “the brunt of th[e] injury” would be
felt in that state. Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d at 1072 (quoting Calder
v. Jones, 465 U.S. at 789-90).
Reynolds American’s alleged activities -- “intimate[] involve[ment] in the marketing,
advertising, and overall business development of Natural American cigarettes,” Amended Complaint
¶ 27, at 12 -- do not establish that it directed its activities at the non-North Carolina states. See
Federated Rural Elec. Ins. Corp. v. Kootenai Elec. Co-op, 17 F.3d 1302, 1305 (10th Cir.
1994)(ruling that placing advertisements in national newspapers or journals do not amount to
purposeful contact with a state). More explicit allegations demonstrating that Reynolds American
targeted a specific state with its publications could potentially establish that it directed its activities at
those states, but those allegations are not present in the Amended Complaint.
Nor may Reynolds American’s subsidiaries’ contacts be substituted for the ones that
Reynolds American lacks. To impute a subsidiary’s contacts onto a parent, the subsidiary must be
the parent’s general agent or alter ego. See Benton v. Cameco Corp., 375 F.3d 1070, 1081 (10th
Cir. 2004)(ruling that an allegation of parent and subsidiary officer overlap was insufficient to
impute subsidiary contacts onto the parent); Daimler AG v. Bauman, 134 S. Ct. at 759 (“[S]everal
Courts of Appeals have held that a subsidiary’s jurisdictional contacts can be imputed to its parent
only when the former is so dominated by the latter as to be its alter ego.”). The Plaintiffs allege that:
(i) Reynolds American has service agreements with its subsidiaries, which enable executive
collaboration; (ii) Reynolds American considers Santa Fe Tobacco an operating segment;
(iii) Reynolds Americans assets are Santa Fe Tobacco’s assets; (iv) Reynolds American controls
Santa Fe’s financial operations; (v) board members and other employees overlap; (vi) Reynolds
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American controls pricing and owns its subsidiaries executive offices and manufacturing facilities;
and (vii) Reynolds American reports Santa Fe Tobacco’s financial statements in SEC filings. See
Response at 78; Amended Complaint ¶¶ 29, 35, at 13-14. Although those allegations demonstrate
that Reynolds American exhibits influence over its subsidiaries, influence alone is insufficient to
demonstrate that the subsidiary is an alter ego. Parent companies typically monitor a subsidiary’s
performance, supervise its finances, and oversee some decisions. See Willis v. Government Emps.
Ins. Co., No. 13-0280, 2016 WL 3946782, at *5 (D.N.M. February 1, 2016)(Gonzales, J.). In
contrast, a subsidiary is an alter ego if it is a mere “instrumentality of the parent.” Key v. Liquid
Energy Corp., 906 F.2d 500, 503 (10th Cir. 1990). Construing state corporate law, the Tenth
Circuit’s analysis in Luckett v. Bethlehem Steel Corp., 618 F.2d 1373 (10th Cir. 1980), is
instructive. In that case, the Tenth Circuit concluded that a subsidiary was not a parent’s alter ego
even though the parent owned seventy percent of the subsidiary’s stock, appointed ten of the
subsidiary’s managers, some of whom had managerial posts at the parent as well, and had contracted
to give the subsidiary technical services and manufacturing equipment. See Luckett v. Bethlehem
Steel Corp., 618 F.2d at 1378; Good v. Fuji Fire & Marine, Ins. Co., 271 F. App’x 756, 759 (10th
Cir. March 27, 2008)(unpublished)(ruling that a parent company owning twenty percent of the stock
in a subsidiary was insufficient to impute the subsidiary’s contacts onto the defendant for personal
jurisdiction); Thompson v. THI of New Mexico at Casa Arena, No. 05-1331, 2008 WL 5999653, at
*26 (D.N.M. December 24, 2008)(Browning, J.)(ruling that a subsidiary was not a parent’s alter ego,
in part, because it “was not intimately involved in the day-to-day operations” and “was
independently financially stable and able to maintain its payroll”). The Tenth Circuit’s conclusion
applies with equal force here; although board members and assets overlap, and Reynolds American
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supervises other aspects of its subsidiary, those facts are insufficient to create an alter-ego or general
agency relationship.
Although the Court lacks personal jurisdiction as to those claims, there is still the question of
the appropriate remedy. The Court notes that it can, under rule 21, sever the defective claims filed
against Reynolds American and transfer that action to a North Carolina federal court, if the transfer
“is in the interest of justice.” 28 U.S.C. § 1631. See Fed. R. Civ. P. 21 (“On motion or on its own,
the court may at any time, on just terms . . . sever any claim against a party.”); Presbyterian
Healthcare Servs. v. Goldman, Sachs & Co., 122 F. Supp. 3d 1157, 1214 (Browning, J.)(“[A] district
court may sever a case under Rule 21 to transfer one action while retaining jurisdiction over the
other.”)(citation and quotation omitted). A North Carolina federal court could exercise general
personal jurisdiction over the claims. The Plaintiffs, however, have not argued for severance and
transfer, so the Court would be acting sua sponte. The Court has authority, however, to sever and to
transfer sua sponte. See Fed. R. Civ. P. 21; Trujillo v. Williams, 465 F.3d 1210, 1222 (10th
Cir. 2006). The Court also has discretion to transfer, but the Tenth Circuit has indicated that the
Court must weigh whether it is in the interests of justice to transfer a claim instead of dismissing it
without prejudice. See Trujillo v. Williams, 465 F.3d at 1222-23.
There are three factors that the Court must consider on an “interests of justice” analysis:
(1) whether the claims would be time barred; (2) the claims’ merit; and (3) whether the original
action was filed in good faith rather than after the Plaintiff realized or should have realized that the
forum was improper. See Trujillo v. Williams, 465 F.3d at 1223 n.16. Many of the claims have
merit as discussed below. The Court also concludes that the Plaintiffs filed their claims on the goodfaith belief that they could establish contacts through Santa Fe Tobacco’s actions.
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As to the final factor, the Plaintiffs allege that the statute of limitations is equitably tolled
under the discovery rule, i.e., the named and unnamed Plaintiffs could not have known of the
deception, so the limitations period does not trigger until the plaintiffs discover the deception, and
because the Defendants concealed their deception. See Amended Complaint ¶¶ 96-102, at 38-39.
They also allege that the Defendants are estopped from relying on a statute of limitation defense,
because the Defendants actively concealed “the true nature, quality, and character” of Natural
American cigarettes. Amended Complaint ¶ 104, at 29. See id. at ¶¶ 103-05, at 39. The Court does
not assess the merits of those allegations, but it notes that the applicable statute-of-limitations period
for the consumer protection statutes, unjust-enrichment claims, and express warranty claims range
from two to six years. See, e.g., Ohio Rev. Code. Ann. 1345.10 (“An action . . . may not be brought
more than two years after the occurrence of the violation . . . .”); Mich. Comp. Laws 445.911(7)
(“An action under this section shall not be brought more than 6 years after the occurrence . . . .”);
Halver v. Welle, 266 P.2d 1053, 1057 (Wash. 1954)(holding that statute of limitations for unjust
enrichment is three years); Alloway v. General Marine Inds., LP, 695 A.2d 264 270-71
(N.J. 1997)(holding that statute of limitations for breach of express warranty is four years). Of the
named plaintiffs who did not file in the Middle District of North Carolina, Sproule filed earliest, on
September 30, 2015, in the Southern District of Florida. See Amended Complaint ¶ 14, at 5. Even
assuming that his claims were tolled under the discovery rule, the statute of limitations triggered
more than two years ago, so would preclude, at least, his OCSPA claim. See Ohio Rev. Code. Ann.
1345.10. However, there is nothing in the Amended Complaint or the judicially noticed documents
to suggest that the Defendants would be equitably estopped from asserting a statute of limitations
defense. There is also nothing within the Amended Complaint suggesting when the Plaintiffs
actually discovered their injuries, which may have been long before the named plaintiffs’ complaints
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were filed. Accordingly, the statute of limitations would likely defeat some, if not many, of the
named Plaintiffs’ claims. The Court concludes that, on balance, the interest of justice favor
severance and transfer -- many of the claims have merit, the Plaintiffs filed in good faith, and there is
a risk that the statute of limitations would bar those claims.
The Court accordingly will sever the claims, creating a new action, and transfer that new
action under 28 U.S.C. § 1631. That statute provides that when the court transfers an action, that
“action . . . shall proceed as if it had been filed in or noticed for the court to which it is transferred on
the date upon which it was actually filed in or noticed for the court from which it is transferred.” 28
U.S.C. § 1631. The action will be transferred to the Middle District of North Carolina and shall
proceed as if it had been filed in the Middle District of North Carolina originally.39 Although
transferred, it appears that the Plaintiffs may file a Notice of Potential Tag-Along Actions with the
MDL Clerk of the Panel, and have the claims reconsolidated here. See MDL Rule 7.1(a)
39
The Court notes two federal cases that have held that an MDL transferee court may not
transfer claims under 28 U.S.C. § 1631, which were consolidated under 28 U.S.C. § 1407. In re
Chiquita Brands Int’l, Inc. Alien Tort Statute and Shareholder Derivative Litig., 190
F. Supp. 3d 1100, 1122-23 (S.D. Fla. 2016)(Marra, J.); In re Camp Lejeune North Carolina Water
Contamination Litig., __ F. Supp. 3d __, 2016 WL 7049038 at *9 n.68 (N.D. Ga. 2016)(Thrash, J.).
In so holding, they rely on Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26
(1998)(“Lexecon”). Lexecon, however, is inapposite. There, the Supreme Court determined that an
MDL transferee court could not transfer an MDL-consolidated case back to itself for trial, pursuant
to 28 U.S.C. 1404(a) because it would interfere with Congress’s clear command in 28 U.S.C.
§ 1407(a) that the MDL panel “shall . . . remand[] . . . at or before the conclusion of such pretrial
proceeds to the district from which it was transferred.” 28 U.S.C. § 1407(a). See Lexecon, 523 U.S.
at 34-35. In so holding, the Supreme Court emphasized that 28 U.S.C. § 1407(a)’s “shall” language
“creates an obligation impervious to judicial discretion,” and the district court could not interfere
with the MDL Panel’s obligation. Lexecon, 523 U.S. at 35.
28 U.S.C. § 1631’s language, however, also includes the obligatory “shall” language. 28
U.S.C. § 1631. The 28 U.S.C. § 1404(a) language, at issue in Lexecon, does not. See 28
U.S.C. § 1404(a). When faced with this obligation, the Court must transfer, if it is in the interest of
justice. In so holding, the Court notes that 28 U.S.C. § 1631 was enacted after the 28 U.S.C. 1407.
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III.
THE CONSENT ORDER DOES NOT PREEMPT THE PLAINTFFS’ CLAIMS
PREMISED ON THE SAFER-CIGARETTE THEORY.
The Defendants move to dismiss the Plaintiffs’ claims, asserting that federal law impliedly
preempts the state-law claims premised on the Safer-Cigarette Theory. See MTD at 6. The Court
first considers below express preemption and then turns to implied preemption.
It ultimately
concludes that the Consent Order does not preempt the Plaintiffs’ claims.
A.
THE FCLAA DOES NOT EXPRESSLY PREEMPT THE PLAINTIFFS’
CLAIMS, BECAUSE THE PLAINTIFFS ALLEGE DECEPTION.
In analyzing preemption, there is an “assumption that the historic police powers of the States
[are] not to be superseded by [federal law] unless that was the clear and manifest purpose of
Congress.” Medtronic, Inc. v. Lohr, 518 U.S. at 485. See Cipollone v. Liggett Grp., Inc., 505 U.S.
504, 518, 523 (1992)(applying a “presumption against the pre-emption of state police power
regulations”). The fundamental standard for preemption is Congress’ intent. See Wyeth v. Levine,
555 U.S. at 565. Unless it is evident that Congress intended to preempt state law causes of action,
primarily where “Congress has ‘legislated . . . in a field which the States have traditionally
occupied,’” there is a presumption that the federal legislation does not displace the states’ police
powers. Medtronic, Inc. v. Lohr, 518 U.S. at 485 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S.
218, 230 (1947)). Consumer protection law -- including cigarette advertising regulations -- is a field
traditionally reserved for the states’ historic police powers. See Packer Corp. v. State of Utah, 285
U.S. 105, 108 (1932)(“[T]he state may, under the police power, regulate the business of selling
tobacco products and the advertising connected therewith.”); Lorillard Tobacco Co. v. Reilly, 533
U.S. at 541-42 (“Because ‘federal law is said to bar state action in [a] fiel[d] of traditional state
regulation,’ namely, advertising, we ‘wor[k] on the assumption that the historic police powers of the
States [a]re not to be superseded by the Federal Act unless that [is] the clear and manifest purpose of
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Congress.’”)(quoting Packer Corp. v. State of Utah, 285 U.S. at 108)(internal citation omitted)).
Commonly, when there is more than one way to read the text of a preemption clause, courts “accept
the reading that disfavors pre-emption.” Bates v. Dow Agrosciences LLC, 544 U.S. 431, 449
(2005).
To prevail on their Motion to Dismiss, the Defendants must overcome a “strong
presumption against pre-emption.” Cipollone v. Liggett Grp., Inc. 505 U.S. at 518.
While neither party raises express preemption under FCLAA or under the FTC’s authority
over advertising and promotion, the Court deems it prudent to discuss the FCLAA. In 1965,
Congress enacted the FCLAA in response to the Surgeon General’s conclusion that cigarette
smoking is harmful. See Cipollone v. Liggett Grp., Inc., 505 U.S. at 513-14. The FCLAA mandates
that every cigarette pack sold in the United States have a warning label stating that cigarette smoking
is dangerous to health, and may cause death from cancer and other diseases. See Cipollone v.
Liggett Grp., Inc., 505 U.S. at 513-14. In the process, Congress expressly preempted state laws that
may add supplemental requirements to the federally required warning. See 505 U.S. at 514. In
1969, Congress amended the FCLAA via the Public Health Cigarette Smoking Act of 1969, which
strengthened the required warning and broadening the preemption provision. See Cipollone v.
Liggett Group, Inc., 505 U.S. at 520. Congress has continued to amend the FCLAA, and, today, the
FCLAA contains two express preemption provisions: 15 U.S.C. § 1334(a)-(b). The FCLAA’s first
preemption clause -- 15 U.S.C. § 1334(a) -- prohibits states from requiring additional statements on
cigarette packages “relating to smoking and health” in an attempt to shield manufacturers from state
labeling laws and their attendant costs. 15 U.S.C. § 1334(a); Altria II, 555 U.S. at 78. The
FCLAA’s second preemption clause -- 15 U.S.C. § 1334(b) -- states that “[n]o requirement or
prohibition based on smoking and health shall be imposed under State law with respect to the
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advertising or promotion of any cigarettes the packages of which are labeled in conformity with the
provisions of this chapter.” 15 U.S.C. § 1334(b); Altria II, 555 U.S. at 78-79.
The FCLAA’s labeling requirement, along with its preemption provisions, demonstrate
Congress’ intent that the FCLAA’s mandated warnings are necessary and sufficient to promote
Congress’ goal. See Altria II, 555 U.S. at 79. Thus, states may not obstruct interstate commerce by
implementing cigarette labeling rules based on the belief that federally mandated warnings are
inadequate. See Altria II, 555 U.S. at 79. Cipollone v. Liggett Group Inc. is instructive and involved
a smoker and spouse who brought suit against cigarette manufacturers after contracting lung cancer.
See Cipollone v. Liggett Grp. Inc., 505 U.S. at 528-29. In ruling that the FCLAA does not preempt
the plaintiffs’ claims arising from a false advertising allegation, the Supreme Court derived a
distinction between state laws premised on smoking and health and those based upon fraudulent
misrepresentations. See Cipollone v. Liggett Group Inc., 505 U.S. at 528-29.
Unlike state-law obligations concerning the warning necessary to render a product
“reasonably safe,” state-law proscriptions on intentional fraud rely on a single,
uniform standard: falsity. Thus, [the FCLAA’s express preemption clause] “based
on smoking and health,” fairly but narrowly construed does not encompass the more
general duty not to make fraudulent statements.
Cipollone v. Liggett Group Inc., 505 U.S. at 528-29. Here, the FCLAA does not expressly preempt
the Plaintiffs’ claims, because their claims are premised on fraudulent misrepresentations. Indeed,
the Defendants, rightfully, do not argue that the FCLAA expressly preempts the Plaintiffs’ claims.
B.
THE CONSENT ORDER DOES NOT IMPLIEDLY PREEMPT THE
PLAINTIFFS’ CLAIMS.
Implied conflict preemption occurs where “compliance with both federal and state
regulations is a physical impossibility,” Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132,
142-43 (1963), or where state law “stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of congress,” Hines v. Davidowitz, 312 U.S. 52, 67 (1941). See Pharm.
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Research and Mfrs. Of Am. V. Walsh, 538 U.S. 644, 679 (2003)(Thomas, J., concurring)(“Obstacle
preemption turns on whether the goals of the federal statute are frustrated by the effect of the state
law.”). Whether an obstacle is sufficient for preemption purposes “is a matter of judgment, to be
informed by examining the federal [law] as a whole and identifying its purpose and intended
effects.” Barber ex rel. Barber v. Colo. Dep’t of Rev., 562 F.3d 1222, 1232 (10th Cir. 2009).
The Defendants do not argue that it is impossible to comply with both the Consent Order and
state law. See MTD at 9-15. Instead, they contend that state law liability erects an obstacle to a
federal objective. See MTD at 9-15. The Court concludes that the Consent Order does not impliedly
preempt the Plaintiffs’ claims for four reasons. First, the Consent Order cannot preempt state law,
because it was not subject to the APA’s or the FTC Act’s rigorous procedural requirements for
promulgating regulations. Second, even if a consent order could preempt state law without going
through the APA or FTC procedural requirements, an agreement not to enforce a federal law does
not evince intent to preclude all state law liability. Third, assuming that the Consent Order had
preemptive effect, it would only bind parties to the agreement, so the consent order would only
prohibit the plaintiffs from bringing suit against Santa Fe Tobacco. Finally, if the Consent Order had
preemptive effect, it would only preempt the Plaintiffs’ claims that target Natural American
advertising and not their labeling, because the Consent Order does not govern labeling.
The Supreme Court has ruled that federal regulations preempt state laws. See Capital Cities
Cables, Inc. v. Crisp, 467 U.S. 691, 699 (1984). Some United States Courts of Appeals have held
that consent orders have preemptive force. See Motion to Dismiss at 11 (relying on, among others,
Feikema v. Texaco, Inc., 16 F.3d 1408, 1416 (4th Cir. 1994); Gen. Motors Corp. v. Abrams, 897
F.2d 34, 39 (2d Cir. 1990)). The United States Court of Appeals for the Fourth Circuit, in Feikema
v. Texaco, Inc., explained that when an agency “‘acting within valid statutory authority . . . enters
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into a consent order, that order will also preempt conflicting state regulation, including a federal
court order based on state common law.’” Feikema v. Texaco, Inc., 16 F.3d at 1416 (emphasis
omitted). Similarly, in Gen. Motors Corp. v. Abrams, the Second Circuit held that an FTC “‘consent
order reflecting a reasonable policy choice of a federal agency and issued pursuant to a congressional
grant of authority may preempt state legislation.’” Gen. Motors Corp. v. Abrams, 897 F.2d at 39.
The Courts of Appeals do not, however, uniformly hold that consent orders grant preemptive
effect. For example, the Fifth Circuit, relying on a United States Court of Appeals for the Eleventh
Circuit case, has ruled that, “[a]s far as preemption is concerned, a voluntary consent decree has the
same effect on state law as does a voluntary affirmative action program -- none.” Dean v. City of
Shreveport, 438 F.3d 448, 464 (5th Cir. 2006)(citing In re Birmingham Reverse Discrimination
Employment Litig., 833 F.2d 1492, 1501 (11th Cir. 1987)). The Seventh Circuit has similarly
suggested that a consent decree does not have preclusive effect, unless subjected to the APA’s
rigorous procedural requirements. See Wabash Valley Power Ass’n, Inc. v. Rural Electrification
Admin., 903 F.2d 445, 454 (7th Cir. 1990).
Because neither the state nor the consumers were parties to the FTC’s case, it is hard
to understand how the decree could blot out their claims based on state law. Whether
the decree has such an effect should depend on whether it was adopted by the agency
as its own policy following the procedures the APA requires; then the preemption
would come from substantive rules rather than the parties’ assent.
Wabash Valley Power Ass’n, Inc. v. Rural Electrification Admin., 903 F.2d at 454. The First
Circuit, in expressing its skepticism that consent orders preempt state law, expanded on the Seventh
Circuit’s proposition that procedural protections must be recognized before agency action will
acquire preemptive effect:
Unlike many other exercises of agency authority, formal rulemaking comes with a
host of procedural protections under the Administrative Procedure Act (“APA”),
such as notice of the proposed rule, an opportunity for interested parties to
participate, a statement of the basis and purpose of any rule adopted, and its
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publication in the Federal Register. 5 U.S.C. § 533 (2007). Limiting the preemptive
power of federal agencies to exercises of formal rulemaking authority, then, ensures
that the states will have enjoyed these protections before suffering the displacement
of their laws. See, e.g., Wabash Valley Power Ass’n, 903 F.2d at 453-54; Richard J.
Pierce, Jr., Regulation, Deregulation, Federalism and Administrative Law, 46 U. Pitt.
L.Rev. 607, 664-65 (1985).
Good v. Altria Grp., Inc., 501 F.3d at 51. “This reasoning has particular force in the case of the FTC
Act, which imposes procedural requirements on the Commission’s rulemaking powers that exceed
those of the APA. 15 U.S.C. §§ 57(c)-(e).” Good v. Altria Grp., Inc., 501 F.3d at 51. Accordingly,
the First Circuit ruled that “we do not believe that the FTC can preempt state-law actions arising out
of particular practices simply by entering into a consent order allowing them to continue.” Good v.
Altria Grp., Inc., 501 F.3d at 53. The United States Court of Appeals for the Third Circuit has ruled
in accord with both the First and Seventh Circuits. See Fellner v. Tri-Union Seafoods, L.L.C., 539
F.3d 237, 245 (3d Cir. 2008)(“We decline to afford preemptive effect to less formal measures
lacking the fairness and deliberation which would suggest that Congress intended the agency’s
action to be a binding and exclusive application of state law.”)(quotations omitted). It reasoned:
Regularity of procedure -- whether it be the rulemaking and adjudicatory procedures
of the APA or others which Congress may provide for a particular purpose -- not
only ensures that state law will be preempted only by federal law, as the Supremacy
Clause provides, but also imposes a degree of accountability on decisions which will
have the profound effect of displacing state laws, and affords some protection to the
states that will have their laws displaced and to citizens who may hold rights or
expectations under those laws.
Fellner v. Tri-Union Seafoods, L.L.C., 539 F.3d at 245.
The Court finds the First, Third, Fifth, Seventh, and Eleventh Circuits’ reasoning persuasive
and concludes that the Consent Order should not and does not preempt state law. A voluntary
agreement -- in short, a contract -- between two parties, even when one is a federal agency, cannot
“blot out” a dual sovereign’s law without procedural safeguards. Wabash Valley Power Ass’n, Inc.
v. Rural Electrification Admin., 903 F.2d at 454. A consent order is no more than a voluntary
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agreement between two parties. See Arvin Indus., Inc. v. Maremont Corp., No. IP 72-C-585, 1973
WL 784, at *3 (S.D. Ind. Mar. 9, 1973). Absent procedural protections, it follows that state law
would be subject to an agency’s caprice, so long as the agency could find some accommodating
private party. Agencies inclinations, moreover, may change with administrations. In addition to the
policy reasons that the Third Circuit articulated, the Court’s interpretation is in accord with the
Supremacy Clause’s text that “the Laws” shall be supreme. See David S. Rubenstein, The Paradox
of Administrative Preemption, 38 Harv. J.L. & Pub. Pol’y 267, 286 (2015)(arguing that “reading [the
Supremacy Clause] in its textual, historical, and structural context rather plainly shows that it was
intended to mean federal statutes -- and exclusively so”); Michael D. Ramsey, The Supremacy
Clause, Original Meaning, and Modern Law, 74 Ohio St. L.J. 559, 564-65 (2013)(arguing that
“law,” as used in the Supremacy Clause, means “laws enacted through the Bicameralism and
Presentment Clauses of Article I, Section 7”). Lawmaking requires more than mutual assent
between two parties. Although the Consent Order here underwent some form of notice and
comment, see Santa Fe Natural Tobacco Company, Inc. Analysis to Aid Public Comment, 65 Fed.
Reg. 26.211-01 (May 5, 2000), that procedure is optional, it is not subject to the APA’s informal
rulemaking standards, and it does not require the agency to respond to public comments, compare 16
C.F.R. § 2.34(c) (“The Commission retains the discretion to issue . . . a Final Decision and Order,
incorporating the order contained in a consent agreement, in appropriate cases before seeking public
comment.”) with 5 U.S.C. § 553(c); Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199, 1203
(2015)(“An agency must consider and respond to significant comments received during the period
for public comment.”); Sorenson Commc’n, Inc. v. F.C.C., 567 F.3d 1215, 1222 (10th Cir. 2009),
nor is it as strict as the rulemaking standard that the FTC must meet to promulgate a regulation on
unfair or deceptive acts or practices, see 15 U.S.C. § 57a(b)(1) (requiring, inter alia, that, before
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prescribing a rule, the FTC allow notice and comment, provide an opportunity for an informal
hearing, and provide a statement of basis and purpose). An APA rulemaking, for example, requires
a statement of basis and purpose, which summarizes a rule’s purpose and reason for adoption, and is,
thus, a “very significant portion of a regulation when an issue arises as to its application and scope.”
United States v. Frontier Airlines, Inc., 563 F.2d 1008, 1013 (10th Cir. 1977). The Consent Order,
on the other hand, has no such statement. A statement of basis and purpose “reveals and explains the
perceived necessity for the rule” and does not leave the court “to guess at the reasoning process of
the agency,” Colorado Health Care Ass’n v. Colorado Dept. of Social Servs., 842 F.2d 1158, 1170
(10th Cir. 1988). With no such statement of basis and purpose, the Court is left to guess the Consent
Order’s scope and purpose. The Court concludes that the minimal notice and comment the Consent
Order underwent are insufficient procedural safeguards to elevate the Consent Order to law that can
have preemptive effect.40
Even if, however, a consent order could preempt state law, this Consent Order still fails to
preempt the Plaintiffs’ claim. The preemption analysis’ guiding star is the FTC’s intent and purpose.
See Medtronic, Inc. v. Lohr, 518 U.S. at 485. The Consent Order mandates that Santa Fe Tobacco
“display in advertisements,” which use such phrases as “no additives, no chemicals, additive-free,
chemical-free, chemical-additive-free, 100% tobacco, pure tobacco, or substantially similar terms,” a
40
Some academic commentators have suggested a similar holding. See Peter L. Strauss,
Publication Rules in the Rulemaking Spectrum: Assuring Proper Respect for An Essential Element,
53 Admin L. Rev. 803, 849-50 (2001)(“An agency that well understood the approaches explored
here would restrict itself to using its guidance, interpretive and policy documents in a precedential
way. It would never claim for them the force that we associate with statutes.”); Richard J. Pierce Jr.,
Regulation, Deregulation, Federalism, and Administrative Law: Agency Power to Preempt State
Regulation, 46 U. Pitt. L. Rev. 607, 611 (1985)(“An agency should provide each state potentially
affected by its action notice and an opportunity to participate in any proceeding in which the agency
is considering a preemptive action.”). Cf. Kent Barnett, Improving Agencies’ Preemption Expertise
with Chevmore Codification, 83 Ford. L. Rev. 587, 601 (2014)(noting that congressional language
“strongly suggests that the OCC must preempt through formal adjudication or formal rulemaking
under the APA”).
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disclosure that “[n]o additives in our tobacco does NOT mean a safer cigarette.” Consent Order § 1,
at 4-5 [at CM/ECF at 13-14] (quotations omitted)(emphasis in original). In a subsequent press
release, the FTC’s Director of its Bureau of Consumer Protection noted that “[t]he new disclosures
should make it clear that . . . cigarettes without additives are not safe to smoke.” Press Release 1 at
1. The Defendants argue that the FTC’s intent with the Consent Order was to authorize the terms
listed, so long as the disclosure mandated accompanies them. See MTD at 10-11. From that
premise, they argue that imposing state liability for use of those terms erects an obstacle to the
FTC’s intent. See MTD at 11.
In analyzing those arguments, the Court proceeds with the backdrop of the presumption
against preemption. The Defendants highlight the press release to contend that the Consent Order’s
purpose is to authorize the contested descriptors, or, potentially, to explain that the terms cannot be
deceptive with the disclosure included. The Court perceives a potential different purpose evidenced
from the press release: health and safety. The Director of the FTC’s Bureau of Consumer
Protections on-the-record comments demonstrate this. She writes: “These cigarettes are marketed
with a natural aura, but they’re neither healthy nor safe,” and concludes with “[t]he fact is, there’s no
such thing as a safe smoke.” Press Release 1 at 1 (quotations omitted). Even her comment that
addresses how the disclosures should cure the advertising’s deceptiveness is phrased in terms of
overall cigarette safety. She says that the disclosures “make it clear that . . . cigarettes without
additives are not safe to smoke.” Press Release 1 at 1. Press Release 1 suggests, thus, that the
Consent Order’s purpose is to convey to consumers that cigarettes are unsafe. If health and safety is
the Consent Order’s purpose, the Consent Order poses no obstacle to the plaintiffs’ deception-based
claims, because the duty to refrain from making fraudulent statements diverges from a duty to warn.
See Cipollone v. Liggett Grp., Inc., 505 U.S. at 528-29.
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Assuming, however, that the Consent Order’s purpose is, as the Defendants’ contend, to
authorize the contested terms, the Plaintiffs’ claims are still not preempted. Altria II offers the
appropriate guidance. In that case, the Supreme Court considered the implied preemption doctrine
and rejected the defendants’ obstacle-preemption claim that the FCLAA preempted a state statute
similar to the statutes at issue in this case, Maine’s Unfair Practices Act, Me. Rev. Stat. Ann., Tit. 5,
§ 207 (2008). See 555 U.S. at 90-91. In Altria II, the plaintiffs alleged that the defendant cigarette
manufacturers deceptively marketing their Marlboro and Cambridge Light cigarettes as containing
lower tar and nicotine to convey that their light cigarettes were less harmful than regular cigarettes.
See 555 U.S. at 73. The Supreme Court concluded that the FCLAA, which forbids state laws from
requiring or prohibiting language with respect to cigarette advertising and promotion, presents no
obstacle to the plaintiffs’ lawsuit, because the federal law ultimately regulates warning labels, and
does not regulate false or misleading statements. See 555 U.S. at 82-83. Moreover, the Supreme
Court determined that an FTC consent order, which prevents the cigarette manufacturers from using
“light” and “low tar” descriptors, unless those terms are accompanied “by a clear and conspicuous
disclosure of the cigarettes’ tar and nicotine content,” did not preempt the plaintiffs’ claims, because
“the decree only enjoined conduct,” and “a consent order is in any event only binding on the parties
to the agreement.” 555. U.S. at 89 n.13. The Supreme Court concluded, thus, that federal law and
regulations did not preempt the plaintiffs’ state-law claims. See 555 U.S. at 90.
The FTC Consent Order at issue in Altria II is similar to the Consent Order here. See In the
Matter of American Brands, Inc., 79 F.T.C. 255, 1971 WL 128779 (August 20, 1971). It orders that:
[R]espondent American Brands, Inc. . . . cease and desist from:
Stating in advertising that any cigarette manufactured by it, or the
smoke therefrom, is low or lower in “tar” by use of the words “low,”
“lower,” or “reduced” or like qualifying terms, unless the statement is
accompanied by a clear and conspicuous disclosure.
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In the Matter of American Brands, Inc., 79 F.T.C. 255, 1971 WL 128779, at *3. The Consent Order
here is similar in that it prohibits descriptors, unless a disclosure accompanies them. It reads:
IT IS ORDERED that . . . [t]hese disclosures shall be displayed . . . in any
advertisement that, through the use of such phrases as no additives, no chemicals,
additive-free, chemical-free, chemical-additive-free, 100% tobacco, pure tobacco, or
substantially similar terms, represents that a tobacco product has no additives or
chemicals.
Consent Order at 5. The Defendants argue that the two Consent Orders’ texts materially differ in
that the Altria II order is “purely prohibitive, requiring the respondent to ‘cease and desist from’”
using descriptors unless a disclosure accompanies them, Reply at 4 (quoting In the Matter of
American Brands, Inc., 1971 WL 128779, at *3), whereas the Consent Order here “affirmatively
permits” descriptors by “specifically stating that it ‘shall not prohibit’” the use of descriptors so long
as the required disclosure is included, Reply at 4 (quoting Consent Order at 5).
The language difference between the two orders is not enough to distinguish this case from
Altria II. Both consent orders prohibit descriptors unless a mandated disclosure accompanies them.
Alternatively, using the Defendants’ chosen rhetoric, both Consent Orders authorize those
descriptors if a disclosure accompanies them. That authorization was insufficient for the Supreme
Court in Altria II, so cannot be sufficient for the Court here. The Defendants’ attempt to distinguish
Altria II ultimately pivots on the Consent Orders’ slightly different language -- the Altria II consent
order phrases its order in terms of ceasing and desisting, and the Consent Order does not. Although
the language enjoining the conduct might be slightly stronger in the Altria II order, the effect of the
two orders is the same -- prohibiting conduct, unless a disclosure accompanies it. That language
difference does not persuade the Court that the FTC’s “clear and manifest purpose” with the Consent
Order was to supplant all state law deception claims, whereas the FTC had no such purpose with the
Altria II consent order. Medtronic, Inc. v. Lohr, 518 U.S. at 485.
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The Defendants’ other attempt to distinguish Altria II is equally unpersuasive. They argue
that Altria II’s reasoning relies, in part, on decades of post-consent-order enforcement actions
demonstrating that the FTC had no policy authorizing the descriptors at issue in Altria II. See Reply
at 4-5. They argue that, in contrast, here, no such history exists. See Reply at 5. In Altria II,
however, the Supreme Court’s historical analysis had no bearing on its consent-order analysis;
rather, the Supreme Court conducted a historical analysis to rebut the tobacco companies’ argument
that the FTC has a longstanding regulatory policy of authorizing the use of “light” and “low tar”
descriptors. See Altria II, 555 U.S. at 87-89 n.13 (“Even if such a regulatory policy could provide a
bases for obstacle pre-emption, petitioners’ description of the FTC’s actions in this regard are
inaccurate.”). Also, an agency’s subsequent history is not the most reliable evidence of the agency’s
intent when it enters a consent order, because an agency’s goals, policies, and personnel change with
administrations. Finally, subsequent history is not a factor on which a court may conclude that
preemption exists. See Medtronic, Inc. v. Lohr, 518 U.S. at 485-86 (“Congress’ intent, of course is
primarily discerned from the language of the pre-emption statute and the statutory framework
surrounding it.
Also relevant, however, is the structure and purpose of the statute as a
whole.”)(quotations omitted); Altria II, 555 U.S. at 87 (“Even if such a regulatory policy could
provide a basis for obstacle pre-emption . . .”).41
Assuming, however, that the Consent Order preempts the Plaintiffs’ claims premised on the
Safer-Cigarette Theory, they would only preempt those claims against Santa Fe Tobacco. A consent
order cannot impliedly preempt claims against third parties. See Altria II, 555 U.S. at 89 n.13
41
The Defendants’ reliance on Mulford v. Altria Grp. Inc., 506 F. Supp. 2d 733 (D.N.M.
2007)(Vazquez, J.), see MTD at 13-14, is misplaced, given that it construes the same consent order
as Altria II does, and the Supreme Court’s 2008 interpretation is binding, whereas Mulford v. Altria
Group. Inc.’s interpretation is not.
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(“And a consent order is in any event only binding on the parties to the agreement. For all of these
reasons, the consent order does not support the conclusion that respondents’ claim is impliedly preempted.”).42 Cf. Liberty Bank F.S.B. v. D.J. Christie, Inc., 681 F. App’x 664, 668 (10th Cir.
2017)(“[P]arties who choose to resolve litigation through settlement may not dispose of the claims of
a third party.”). Reynolds American was not a party to the Consent Order, so the Plaintiffs’ claims
against that entity are not preempted.
Finally, even if the Consent Order preempts the Plaintiffs’ Safer-Cigarette Theory, it would
preempt that claim only vis-à-vis the Defendants’ advertisements, and not the Defendants’ cigarette
packaging and labeling. The Consent Order applies only to “advertisements.” Consent Order at 4,
[at 13 on CM/ECF] (“[R]espondent . . . shall display in advertisements . . . .”). The Defendants urge
the Court to overlook the conspicuous absence of “packaging and labeling” from the Consent Order,
because the “FTC could have imposed restrictions on [Natural American cigarette] packaging, but
chose not to -- evidencing a conclusion that packaging did not present cause for concern.” Reply at
10. The Court declines to read in the phrase “packing and labeling” into the Consent Order. The
preemption test hinges on the agency’s intent, which primarily turns on the Consent Order’s
language and structure. See Medtronic, Inc. v. Lohr, 518 U.S. at 485-86. The absence of language,
accordingly, suggests an intent not to preempt claims based on those absent terms. See Bates v.
42
The Supreme Court’s holding here is somewhat ambiguous. The wording suggests two
possible readings. First, it could mean that all non-parties to the agreement can pursue state law
claims against all parties and non-parties to the agreement without the consent order preempting
their claims. Under that reading, the Plaintiffs’ claims would not be preempted, because they were
not parties to the Consent Order. The other plausible reading is that non-parties claims against
parties to the agreement can be preempted, but nonparties claims against non-parties cannot be
preempted. The Court concludes that the second reading is the Supreme Court’s most likely
meaning. The first meaning limits a consent order’s preemptive effect to such a degree that a
consent order would almost never preempt state law claims. Although the Court concludes that
consent orders should have limited preemptive effect, it determines that it is unlikely that the
Supreme Court would make such an expansive holding without more elaboration.
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Dow Agrosciences, LLC, 544 U.S. at 449 (ruling that when the preemption clause’s text is
susceptible to more than one plausible reading, courts ordinarily “accept the reading that disfavors
pre-emption”). Although conceivable that the FTC chose not to include packaging and labeling in
the Consent Order, because it was not concerned with the packages’ deceptiveness, the Defendants
offer no plausible explanation why that might be so, see Reply at 10, and, moreover, agency
indifference cannot amount to preemption.
The Consent Order also cannot preempt the Plaintiffs’ Safer-Cigarette Theory claims
premised on the word organic.43 Contrary to the Defendants’ position that the Plaintiffs do not
allege an organic-premised claim, see MTD at 12; Reply at 8-9, the Plaintiffs’ Amended Complaint
alleges that “[t]his misleading message is further reinforced through the use of the term ‘Organic’ on
many of the labels and advertisements,” Amended Complaint ¶ 6, at 2, and each Count re-alleges
and incorporates by reference each preceding paragraph, see e.g., Amended Complaint ¶¶ 135, 150,
170 at 46, 49, 53. The Defendants do not argue that the Consent Order preempts such claims, but,
instead contend that USDA regulations, 7 C.F.R. §§ 205.01-699, and the Organic Foods Product
Act, 7 U.S.C. §§ 6501-24 (“OFPA”) preempts those claims. See MTD at 12 n.3; Reply at 9-10. The
Defendants specifically argue that their use of organic is “consistent with OFPA regulations.” Reply
at 9 (emphasis omitted). Consistency and preemption, however, are not equivalent concepts.
Because the Defendants do not specify which preemption doctrine they are invoking, the
Court considers both express and implied preemption. First, the OFPA and 7 C.F.R. §§ 205.01699 do not contain any express preemption provisions implicating state tort, contract, or consumer
43
If the Consent Order preempts the Plaintiffs’ Safer-Cigarette Theory claims, it would
encompass the claims premised on the word natural. The Court concludes that natural is a
“substantially similar term” to “additive-free,” because natural’s plain meaning would suggest that a
tobacco product “has no additives or chemicals.” Consent Order at 5. See Black’s Law Dictionary
at 1126 (9th Ed. 2009)(“Brought about by nature as opposed to artificial means. Inherent; not
acquired or assumed.”).
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protection claims, so the Plaintiffs’ claims premised on the term “organic” are not expressly
preempted. See In re Aurora Dairy Corp. Organic Milk Marketing and Sales Practices Litig., 621
F.3d 781, 792 (8th Cir. 2010)(“In re Aurora”). Second, the Court considers implied field
preemption. Field preemption exists if “[f]ederal statutory directive provide a full set of standards”
or if “Congress occupies an entire field.” Arizona v. United States, 567 U.S. at 401. See US
Airways, Inc. v. O’Donnell, 627 F.3d 1318, 1324-25 (10th Cir. 2010)(“Field preemption occurs
when a ‘state law . . . regulates conduct in a field that Congress intended the Federal Government to
occupy exclusively.”). “When conducting a field preemption analysis, we must first identify the
legislative field that the state law at issue implicates.” US Airways, Inc. v. O’Donnell, 627 F.3d at
1325. Congress designed the OFPA to “establish national standards governing the marketing of
certain agricultural products as organically produced products” and to “assure customers that
organically produced products meet a consistent standard.” 7 U.S.C. § 6501(1)-(2). The Court
concludes that the legislative field implicated in this analysis is the regulation of organic product
marketing. See In re Aurora, 621 F.3d at 788. “Having identified the legislative field at issue, we
must next evaluate whether Congress intended to occupy the field to the exclusion of the states.” US
Airways, Inc. v. O’Donnell, 627 F.3d at 1325. “[T]he purpose of Congress must be clear as we
presume that ‘Congress does not cavalierly pre-empt state-law causes of action.’” US Airways, Inc.
v. O’Donnell, 627 F.3d at 1325 (quoting Medtronic, Inc. v. Lohr, 518 U.S. at 485). Construing
claims that several companies deceptively labeled their milk as organic, the United States Court of
Appeals for the Eighth Circuit recently considered whether the OFPA field preempted those statelaw claims. See In re Aurora, 621 F.3d at 789, 793-94. Noting that the OFPA “requires states to
seek approval from the USDA only if the State wishes to operate an organic certification program,”
the Eighth Circuit determined that “OFPA more modestly [than the Occupational Safety and Health
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Act of 1970] contemplates a certification program designed to effect national standards and to
eliminate the preexisting ‘havoc for the industry’ caused by balkanized state regulations,” and,
therefore OFPA’s regulatory scheme is not so pervasive as to suggest field preemption. In re
Aurora, 621 F.3d at 793-94. See Segedie v. Hain Celestial Grp., Inc., No. 14-5029, 2015 WL
2168374, at *4 (S.D.N.Y. May 7, 2015)(Roman, J.). This reasoning persuasive. Merely establishing
a national certification program, in and of itself, does not overcome the presumption against
preemption. Moreover, the statute itself contemplates that the states may impose stricter standards
than the federal program. See 7 U.S.C. § 6507(b). The Court concludes, accordingly, that that the
plaintiffs’ organic-premised claims are not field preempted.
Impossibility and obstacle preemption similarly do not bar the Plaintiffs’ organic-based
claims. The OFPA allows products to be labeled organic if they are “produced and handled without
the use of synthetic chemicals,” and are produced on land that has not been exposed to synthetic
chemicals for at least three years preceding harvest of the product. U.S.C. 7 § 6504 (1)-(2). See 7
C.F.R. §§ 205.101, 2502.202-207, 205.236-40. It is possible for the Defendants to adhere to these
requirements without deceptively suggesting that their cigarettes are healthier than other cigarettes,
so impossibility preemption is foreclosed. Regarding obstacle preemption, OFPA’s purpose, as
recounted previously, is to “establish national standards governing the marketing of certain
agricultural products as organically produced products” and to “assure customers that organically
produced products meet a consistent standard.” 7 U.S.C. § 6501(1)-(2). To effect that goal,
Congress seeks to create a standardized, national certification process. See 7 U.S.C. §§ 6503-6507;
In re Aurora, 621 F.3d at 794-95. State-law claims premised on a manufacturer’s purported
deception pose no obstacle to that effect. As the Eighth Circuit explains:
[P]reemption of state consumer protection law may actually diminish consumer
confidence that organic products meet consistent standards as consumers become
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aware that otherwise meritorious claims are being preempted because the certifying
agent has not suspended the certification in spite of clear facts to the contrary.
Similarly, although broad factual preemption may increase organic production in the
short term, consumers may well elect to avoid paying the premium for organic
products upon realizing preemption grants organic producers a de facto license to
violate state fraud, consumer protection, and false advertising laws with relative
impunity, because the OFPA’s only remedy for noncompliance is recourse to the
USDA for revocation of certification and possibly for a civil penalty.
In re Aurora, 621 F.3d at 798. The Plaintiffs organic-premised claims are, thus, not preempted.
IV.
DECEPTIONS BASED ON THE PLAINTIFFS’ SAFER-CIGARETTE AND
MENTHOL THEORIES MISLEAD A REASONABLE CONSUMER, BUT
DECEPTIONS PREMISED ON THE UNPROCESSED-CIGARETTE THEORY DO
NOT.
The Defendants contend that fourteen of the Plaintiffs’ nineteen statutory claims fail, because
the Plaintiffs have not plausibly alleged that a deception premised on the Plaintiffs’ three theories
misleads a reasonable consumer. See MTD at 39-40. The Court concludes that the reasonable
consumer standard governs those fourteen statutes. See Quelimane Co. v. Stewart Title Guaranty
Co., 960 P.2d 513, 530 (Cal. 1998)(ruling that a reasonable consumer standard governed California’s
Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 (“UCL”)); Williams v. Gerber Products
Co., 552 F.3d at 938 (holding that California’s UCL, California’s False Advertising Law, Cal. Bus.
& Prof. Code § 17500 (“CFAL”), and California’s Consumer Legal Remedies Act, Cal. Civ.
Code § 1770 (“CCLRA”), require a deception to mislead a reasonable consumer);44 PNR, Inc. v.
44
The Supreme Court of California has not determined the standard for the California CFAL,
or CCLRA. The Ninth Circuit’s state law interpretations bind Ninth Circuit district courts absent
“any subsequent indication from the [state supreme court] that our interpretation was incorrect.”
Kona Enterp., Inc. v. Estate of Bishop, 229 F.3d 877, 884 n.7 (9th Cir. 2000). The Court concludes
that, although the Ninth Circuit binds the Ninth Circuit lower courts on state law matters, it does not
bind the Court, because the rationale, which binds the district courts on state law matters, is that
Ninth Circuit decisions bind its lower courts. See Kona Enterp., Inc. v. Estate of Bishop, 229 F.3d at
884 n.7; Hasbrouck v. Texaco, Inc., 663 F.2d 930, 933 (9th Cir. 1981)(“District Courts are bound by
the law of their own circuit.”). That reasoning does not apply to the Court, because it sits in the
Tenth Circuit. The Court, nevertheless, concludes that the Ninth Circuit’s state law interpretation is
persuasive here, and also concludes that the Supreme Court of California would determine that the
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Beacon Props. Mgmt., Inc., 842 So.2d 773, 777 (Fla. 2003)(holding that a deception occurs under
FDUTPA if a consumer, acting reasonably under the circumstances, is misled); Barbara’s Sales, Inc.
v. Intel Corp., 879 N.E.2d 910, 927 (Ill. 2007)(ruling that the ICFA is subject to a reasonable
consumer standard); Aspinall v. Philip Morris Cos., 813 N.E.2d at 487-88 (ruling that a reasonable
consumer standard governs Massachusetts General Laws, Chapter 93A); Dix v. American Bankers
Life Assur. Co. of Fla., 415 N.W. 2d 206, 209 (Mich. 1987)(“It is sufficient, [under the MCPA], if
the class can establish that a reasonable person would have relied on the representations.”); Turf
Lawnmower Repair, Inc. v. Bergen Record Corp., 655 A.2d 417, 430 (N.J. 1995)(ruling that the
NJCFA is subject to an average consumer test); N.M. Stat. Ann. § 57-12-4 (“[I]n construing Section
3 of the Unfair Practices Act the courts to the extent possible will be guided by the interpretations
given by the federal trade commission and the federal courts.”); FTC v. LoanPointe, LLC, 525
F. App’x 696, 700 (10th Cir. 2013)(unpublished)(“Under the FTC Act, a practice is deceptive if it
entails a material misrepresentation or omission that is likely to mislead consumers acting reasonably
under the circumstances.”)(citation omitted); Stutman v. Chemical Bank, 731 N.E.2d 608, 611-12
(N.Y. 2000)(“Whether a representation or an omission, the deceptive practice must be likely to
mislead a reasonable consumer acting reasonably under the circumstances.”)(quotation omitted);
Marshall v. Miller, 276 S.E.2d 937, 939 (N.C. 1981)(“It is established by earlier decisions of this
Court that federal decisions interpreting the FTC Act may be used as guidance in determining the
reasonable consumer test applies to California’s CFAL and CCLRA, because the great weight of
California appellate authority has determined such a test would apply and the Supreme Court of
California has held that a reasonable consumer standard applies, under the UCL -- a similar statute to
the CFAL and CCLRA. See, e.g., Lavie v. Procter & Gamble Co., Cal. Rptr. 2d 486, 494 (Cal. Ct.
App. 2003); Quelimane Co. v. Stewart Title Guaranty Co., 960 P.2d at 530. Cf. Kasky v. Nike, Inc.,
45 P.3d 243, 304 (Cal. 2002)(“We have also recognized that these laws prohibit not only advertising
which is false, but also advertising . . . which has a capacity, likelihood or tendency to deceive or
confuse the public.”); In re Tobacco II Cases, 207 P.3d at 29.
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scope and meaning of [N.C. Gen Stat.] 75-1.1.”);45 Struna v. Convenient Food Mart, 828
N.E.2d 647, 661 (Ohio Ct. App. 2005)(“[C]ourts shall apply a reasonableness standard in
determining whether an act amounts to deceptive unconscionable or unfair conduct.”);46 Panag v.
Farmers Ins. Co. of Washington, 204 P.3d 885, 894 (Wash. 2009)(en banc)(“A plaintiff need not
show the act in question was intended to deceive, only that it had a capacity to deceive a substantial
portion of the public.”).
The plaintiffs articulate three theories of deception. These theories have already been
discussed, see supra at 11, but, in brief summary, the three theories are:
(1)
The Safer-Cigarette Theory: the Plaintiffs argue that the use of the terms
organic, natural, and additive-free mislead tobacco consumers into believing
that Natural American cigarettes are safer and healthier. See Amended
Complaint ¶¶ 4-8, 47-66, at 2-3, 22-31; MTD at 22-24.
(2)
The Menthol Theory: the Plaintiffs argue that, by labeling Natural
Americans cigarettes with menthol “additive-free” and “natural,” the
Defendants mislead menthol consumers, because menthol is an additive. See
Amended Complaint ¶¶ 10, 67-69 at 3, 31-32; MTD at 24-25.
(3)
The Unprocessed-Cigarette Theory: the Plaintiffs argue that, by labeling
Natural American cigarettes as Natural, the Defendants mislead consumers
into believing that Natural American cigarettes are not subjected to rigorous
45
The Supreme Court of North Carolina has not determined the standard for North Carolina
General Statute 75-1.1. The Court concludes, however, that the Supreme Court of North Carolina
would adopt a reasonable consumer standard, because it has signaled that it would use federal
courts’ interpretations of the FTC Act, 15 U.S.C. § 45(a), to guide its decision making, and several
federal courts have adopted the a reasonable consumer standard for the FTC Act. See FTC v.
LoanPointe, LLC, 525 F. App’x at 700 (“Under the FTC Act, a practice is deceptive if it entails a
material misrepresentation or omission that is likely to mislead consumers acting reasonably under
the circumstances.”)(citation omitted); Farrin v. Thigpen, 173 F. Supp. 2d 427, 439 (M.D.N.C.
2001)(Osteen, J.)(“[A]n advertisement is deceptive . . . if it is likely to mislead consumers, acting
reasonably under the circumstances.”)(citation omitted).
46
The Court is aware that, under Erie, it is not bound to follow Court of Appeals of Ohio if it
concludes that the Supreme Court of Ohio would decide the issue differently. See supra n.21. The
Court will follow the Court of Appeals of Ohio’s decision in Struna v. Convenient Food Mart,
however, because the Court has found no indication that the Supreme Court of Ohio would apply a
contrary rule.
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engineering processes during production. See Amended Complaint ¶¶ 9, 7074, at 3, 32-33; MTD at 25.
The Defendants marshal three attacks against the Plaintiffs’ three theories of deception. See
MTD at 42-49. First, they argue the Safer-Cigarette Theory is implausible, because a reasonable
consumer would read the disclaimer stating that “no additives does NOT mean a safer cigarette” and
would understand from that disclaimer that Natural American cigarettes were not safer or healthier.
See MTD at 42-43 (emphasis in original). Second, they argue that the Menthol Theory is
implausible, because a reasonable consumer knows that menthol cigarettes contain menthol, so
would understand that the no-additive term does not encompass menthol. See MTD at 46-47. Third,
they argue that the Unprocessed-Cigarette Theory is implausible, because a reasonable consumer
would know that Natural American cigarettes are subjected to engineering processes. See MTD at
47-49.47 The Court addresses each argument in turn.
At the outset, the Court determines that it is plausible that a reasonable consumer, seeing the
terms organic, natural, and additive free, would erroneously believe that Natural American cigarettes
are safer or healthier than other cigarettes. In pleading their Safer-Cigarette Theory, the Plaintiffs
47
The Plaintiffs rejoin that whether a reasonable consumer would be deceived is a question of
fact ordinarily not decided on a Motion to Dismiss. See Response at 39-42 (citing Williams v.
Gerber Prods. Co., 522 F.3d at 939-40; Foster v. Chattem, Inc., No. 14-0346, 2014 WL 3687129, at
*3 (M.D. Fla. July 23, 2014)(Dalton, J.); Biffar v. Pinnacle Foods Grp., LLC, No. 16-0873, 2016
WL 7429130, at *8 (S.D. Ill. Dec. 26, 2016)(Herndon, J.); Santosuosso v. Gibbs Ford, Inc., 1992
Mass. App. Div. 167, 170 (1992)); Supp. Brief at 4-10. Although those cases suggest that the
inquiry is usually more appropriate for summary judgment, none of them foreclose deciding the
issue on a motion to dismiss. Moreover, none are binding on the Court, and the Court declines to
follow them. There is nothing in the statutes suggesting that they are insulated from a motion to
dismiss or that the Court should forego the Supreme Court mandated plausibility analysis. See Bell
Atl. Corp. v. Twombly, 550 U.S. at 555. The Court cannot weigh evidence on a rule 12(b)(6)
motion, but determining whether the Plaintiffs have plausibly stated a claim does not require
weighing the evidence. Rather, the question is whether a reasonable consumer could plausibly be
deceived in the manner in which the Plaintiffs allege. Courts frequently determine this question at
the motion to dismiss stage, see, e.g., Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013);
Carrea v. Dreyer’s Grand Ice Cream, Inc., 475 F. App’x 113, 115 (9th Cir. 2012), and the Court does
so here.
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rely heavily on several social science studies, which conclude that Natural American smokers are far
more likely to believe that their brand is healthier than other cigarette brands, because of those
descriptors. See Amended Complaint ¶¶ 50-54, at 23-27; Supp. Arg. at 4-6. For example, one study
concludes that “[n]early 1 million US adult smokers prefer” Natural American cigarettes and they
“are 22 times more likely than other smokers to believe that their brand is less harmful than other
cigarette brands,” leading the study authors to conclude that Natural American smokers may choose
that brand because of the “descriptors organic, natural, and additive free on product packaging and
advertising.” Amended Complaint ¶ 52, at 25 (citing Misperceptions at 3). As surely as a Ph.D.
cannot be swapped for an Article III commission, an academic study cannot take the place of the
Court’s judgment on a rule 12(b)(6) motion. See Ashcroft v. Iqbal, 556 U.S. at 679 (“Determining
whether a complaint states a plausible claim for relief . . . requires the reviewing court to draw on its
judicial experience and common sense.”). There is a possibility that all of the consumers studied
were unreasonable consumers and unreasonably believed that Natural Americans were healthier,
because of the cigarettes’ descriptors. Moreover, the subjective beliefs of the consumers studied,
even if those consumers are generally reasonable, cannot blindly be swapped for the reasonable
consumer’s beliefs.
The Court concludes that, nevertheless, the Plaintiffs’ allegations, accepted as true, advance
their Safer-Cigarette Theory from a mere possibility into the realm of plausibility. The terms natural
and organic have long been used across the country to convey products’ health benefits. See, e.g.,
Discount Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509, 536 (6th
Cir. 2012)(“[C]ommon sense dictates the conclusion that [naturalists] prefer such products precisely
because they believe that natural and organic products confer health advantages over conventional
products.”); FTC v. Garvey, 383 F.3d 891, 895 (9th Cir. 2004)(noting that the defendants had
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conflated an “all natural” diet with a “healthier, more active lifestyle”); Covington v. Arizona
Beverage Co., LLC, 2009 WL 10668916, at *1 (S.D. Fla. September 11, 2009)(Seitz, J.)(concluding
that “Natural” labeling would lead “consumers to believe that Defendants’ products are healthier
than others on the market”); Noble v. 93 University Place Corp., 303 F. Supp. 2d 365, 375
(S.D.N.Y. 2003)(Scheindlin, J.)(“In the instant case, a credulous consumer would believe that food
labeled ‘organic’ or ‘natural’ . . . is healthier than regular food.”); National Nutritional Foods Ass’n
v. Whelan, 492 F. Supp. 374, 378 (S.D.N.Y. 1980)(Sofaer, J.)(“[A]dvocates of health foods have
managed to convince a significant portion of the population that organically grown food is more
nutritious and safer than ‘regular’ food.”). Additives have also long been known to or believed to
potentially increase health risks. See, e.g., Guttman v. Ole Mexican Foods, Inc., 2016 WL 9107426,
at *3 (N.D. Cal. August 1, 2016)(Gilliam, J.)(noting that settlement removing additives from a food
product “provides substantial health benefits to all purchasers”); Barnes v. American Tobacco Co.,
984 F. Supp. 842, 870 (E.D. Pa. 1997)(Newcomer, J.)(ruling that additives used in cigarettes
“increase the risk of harm” to smokers). With that backdrop, the reasonable consumer is not
expected to defy decades of marketing, which has conveyed that natural, organic, and additive-free
products are healthier. Two federal agencies’ findings buttress the Court’s conclusion, as both the
FDA and the FTC determined that the Defendants’ descriptors conveyed a message that their
cigarettes were less harmful than other cigarettes. See FTC Complaint ¶ 5, at 2; Warning Letter at 2.
See
also
United
States
v.
Philip
Morris
USA,
Inc.,
449
F. Supp. 2d 1,
27
(D.D.C. 2006)(Kessler, J.)(enjoining a cigarette manufacturer from advertising its cigarettes as
“natural,” among other descriptors, which “implicitly or explicitly convey to the smoker and
potential smoker that they are less hazardous to health than full flavor cigarettes”).
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The Defendants do not contest that the descriptors convey to a reasonable consumer that
Natural American cigarettes are healthier than other cigarettes. Rather, they contend that the
disclaimer cures any deception. See MTD at 42-46. The Plaintiffs rejoin that a reasonable consumer
is still misled, because the packaging’s disclaimer is hidden. See Response at 44 (citing e.g.,
Williams v. Gerber Products Co., 552 F.3d at 939; Ackerman v. Coca-Cola Co., No. 09-0395, 2010
WL 2925955, at *6-7, *16 (E.D.N.Y. July 21, 2010)(Gleeson, J.); Lam v. Gen. Mills, Inc., 859
F. Supp. 2d 1097, 1105 (N.D. Cal. 2012)(Conti, J.); Wilson v. Frito Lay N. Am., Inc., No. 12-1586,
2013 WL 1320468, at *12 (N.D. Cal. Apr. 1, 2013)(Conti, J.); Jou v. Kimberly Clark Corp., No. 133075, 2013 WL 6491158, at *1, *5 (N.D. Cal. December 10, 2013)(Corely, MJ.)). In Williams v.
Gerber Products Co., the Ninth Circuit concluded that a reasonable consumer should not “be
expected to look beyond misleading representations on the front of the box to discover the truth from
the ingredient list in small print on the side of the box,” because “reasonable consumers expect that
the ingredient list contains more detailed information about the product that confirms other
representations on the packaging.” Williams v. Gerber Products Co., 552 F.3d at 939-40. The
United States District Court cases that the Plaintiffs cite largely reiterate the Ninth Circuit’s
conclusion. See Ackerman v. Coca-Cola Co., 2010 WL 2925955, at *16 (“[T]he presence of a
nutritional panel, though relevant, does not as a matter of law extinguish the possibility that
reasonable consumers could be misled by vitamin water’s labeling and marketing.”); Lam v. General
Mills, Inc., 859 F. Supp. 2d at 1105 (“Likewise, here, the Fruit Snacks’ ingredients list cannot be
used to correct the message that reasonable consumers may take from the rest of the packaging.”);
Wilson v. Frito-Lay N. Am., Inc., 2013 WL 1320468, at *13 (“Even though the nutrition box could
resolve any ambiguity, the Court cannot conclude as a matter of law, in the context of a Rule
12(b)(6) motion, that no reasonable consumer would be deceived.”); Jou v. Kimberly-Clark Corp.,
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2013 WL 6491158, at *9 (“Thus, under Williams, Defendant cannot rely on disclosures on the back
or side panels of the packaging to contend that any misrepresentation on the front of the packaging is
excused.”). Those cases turn on the presence of curative information in an ingredients list.48 Here,
the disclaimer is not an ingredient listed where “reasonable consumers expect . . . more detailed
information about the product that confirms other representations on the packaging,” Williams v.
Gerber Products Co., 552 F.3d at 939-40; instead, the disclosure is divorced from the ingredients,
and, unlike an ambiguous ingredient term, the disclosure is a clear statement that “no additives does
NOT mean a safer cigarette.” A reasonable consumer would understand that statement to modify
the labeling’s “additive-free” descriptor. Moreover, a reasonable consumer would look on the
packages’ sides and top for disclosures such as the one contained on Natural American’s packaging.
Product packaging commonly has additional information about the product on the back and sides, so
a reasonable consumer would look there for disclaimers or qualifying information. A reasonable
consumer would not look on the bottom of packaging in the same way, because relevant information
is rarely there. That observation is not to say that a reasonable consumer is expected to understand
every piece of information disclosed on a package’s sides. The Court agrees with Williams v.
Gerber Products Co.’s reasoning that some information may be too ambiguous to provide a
reasonable consumer curative information. Here, however, there is no ambiguity. The disclaimer is
clear and express.
The Plaintiffs also contend that the disclosure is hidden, tucked under barcode, so a
reasonable consumer cannot be expected to find it. The Court agrees with this argument to a point.
48
Jou v. Kimberly-Clark Corp. stands for the broader proposition that no side-packaging
writing can cure deceptive labeling on the front. See 2013 WL 6491158, at *9 The Court concludes
that the Honorable Jacqueline Corley, United States Magistrate Judge for the United States District
Court of the Northern District of California, construed Williams v. Gerber Products Co., 552 F.3d at
939-40 too expansively, because Williams v. Gerber Products Co.’s language is cabined to
ingredients lists and not to all side-packaging disclosures.
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Above are two representative packages that the Court judicially noticed. See Gold Label at CM/ECF
78-83; Turquoise Label at CM/ECF 85-90. The disclaimer is located on the right-hand side,
underneath the bar code, and, although it is not in the most prominent location, the disclaimer is
legible, the Defendants have made the font color white on packaging where white text stands out,
and black where black text stands out, and the disclaimer is not buried in a paragraph of text; instead,
it is a single, separate sentence. See Gold Label at CM/ECF 78-83; Turquoise Label at CM/ECF 8590. See also American Labeling at 64-111 on CM/ECF. On just those facts, the Court would
conclude that a reasonable consumer would be expected to locate, read, and understand the
disclosure.
Cigarettes are often sold, however, in a manner such that a consumer cannot inspect the
packaging in detail before purchasing, e.g., the cigarettes are kept locked in a display next to or
behind the counter. The display shows the cigarette pack’s front, but not the sides or back. A store
clerk sometimes does not even hand the cigarette pack to the consumer before purchase, but places
the pack directly in a shopping bag. Based on this, even though a reasonable consumer would
inspect other items before purchase, it is not clear that they would have the opportunity to inspect
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Natural American cigarettes’ labeling. Accordingly, the Court cannot conclude that the package’s
disclosure would cure a deception inflicted upon a reasonable consumer.
The Plaintiffs do not argue that a reasonable consumer would miss the disclosures on the
Defendants’ advertising, see Response at 43, and the Court concludes that a reasonable consumer
would read and comprehend the advertising disclosures. Unlike the packaging, the advertisement’s
disclaimer is in a prominent location boxed over the Surgeon General’s Warning, and a reasonable
consumer would spot it easily. See Tobacco & Water Advertisement at 114 on CM/ECF.
Although a reasonable consumer would understand from the disclosure that the lack of
additives does not make Natural American cigarettes healthier, that disclaimer says nothing about
the natural or organic descriptors. As explained above, those two terms have an independent
connotation that a product is healthier or safer. See, e.g., Discount Tobacco City & Lottery, Inc. v.
United States, 674 F.3d at 536; Noble v. 93 University Place Corp., 303 F. Supp. 2d at 375. The
Defendants’ conflate the natural and additive-free terms, see Reply at 22, and also argue that “the
disclosure plainly disclaims any notion that Natural American cigarettes are safer than alternatives,”
Supp. Resp. at 10. The Court disagrees. The Defendants’ argument asks for a hefty inference in
light of the disclosure’s specificity. The disclaimer states: “No additives in our tobacco does NOT
mean a safer cigarette.” FTC Consent Order at 4. It says nothing about natural; it says nothing
about organic. Specific language communicates a specific meaning and a reasonable consumer
interprets it with that specific meaning. Cf. In re Universal Service Fund Telephone Billing Practice
Litig., 619 F.3d 1188, 1218 (10th Cir. 2010)(ruling that specific terms in a contract governs the
contract’s meaning). The natural and organic descriptors, accordingly, are deceptive to a reasonable
consumer.
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Natural American’s additive-free descriptor on menthol cigarettes also misleads a
reasonable consumer. The crux of the Defendants’ arguments against the Plaintiffs’ Menthol Theory
is that a reasonable consumer would know that menthol cigarettes contain menthol -- an additive.
See MTD at 46. From that premise, they argue that an additive-free descriptor would not be
deceptive, because a reasonable consumer knows that she is purchasing a menthol cigarette. See
MTD at 46. That argument assumes, however, that a reasonable consumer is so secure in her
knowledge that menthol is an additive that an express representation to the contrary, on a heavily
regulated product, see Phillip Morris, Inc. v. Reilly, 312 F.3d 24, 26 (1st Cir. 2002), does not
mislead her into thinking that menthol is not an additive. Menthol’s properties are not commonly
known, even among cigarette users. See Preliminary Scientific Evaluation of the Possible Public
Health Effects of Menthol Versus Nonmenthol Cigarettes, Food and Drug Administration, 70-71
(2013) available at https://www.fda.gov/downloads/ScienceResearch/SpecialTopics/PeerReview
ofScientificInformationandAsse/UCM361598.pdf (reporting that menthol users held diverging
beliefs on menthol’s health and addictive risks). Before this case, the Court did not know much, if
anything, about menthol. It knew that it gave a smoother, milder smoking experience, and increased
a cigarette’s appeal and enjoyment to a broader consumer base, but it did not know what menthol is
or whether it is a natural substance or additive. See June Tr. at 54:21 (Court)(“What is menthol?”);
id. at 64:10-12 (Court)(“But menthol, what is it? Is it a plant? Is it a chemical that science has
invented? What exactly is menthol?”).49 The Court concludes that it is plausible that a reasonable
consumer would not know whether menthol naturally occurs in tobacco. Many goods have naturally
occurring qualities that are prominently labeled separately on the good. For example, caffeine
49
As explained above, Menthol is an organic molecule derived from mint. See June Tr. at 1315 (Schlesinger).
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naturally occurs in coffee. See Gwendolyn Prothro, The Caffeine Conundrum: Caffeine Regulation
in the United States, 27 Cumb. L. Rev. 65, 66 (1996). Moreover, even if a reasonable consumer
knows that menthol is an additive, it is nonetheless plausible that an additive-free descriptor
undermines her knowledge, because menthol is an uncommon good. Unlike the Defendants’
reasonable consumer examples, e.g., a reasonable consumer knows that almond milk contains no
dairy milk and that veggie bacon contains no pork, see MTD at 47, menthol is not milk or bacon; its
inherent qualities are not well known. It is plausible that, faced with a contrary descriptor, the
reasonable consumer would conclude that her preconceived notions about menthol are mistaken.
Indeed, she could conclude that menthol is a type of tobacco or tobacco grown in a specific location,
such as perique tobacco.50
The ingredient’s list on the product’s back, which itemizes tobacco and menthol separately,
does not dispel the deception.
Without an unambiguous signal that the ingredients list is
countermanding another representation on the package, “reasonable consumers expect that the
ingredient list contains more detailed information about the product that confirms other
representations on the packaging.” Williams v. Gerber Products Co., 552 F.3d at 940. The Ninth
Circuit’s reasoning in Williams v. Gerber Products Co. is persuasive to the Court, and it concludes
that the state Supreme Courts would also find it persuasive; the reasonable consumer is not hypervigilant and does not expect the product’s packaging to deceive her. Ingredient itemization does
not offer the same clear signal that the FTC-mandated disclosure does. It does not, for example,
state that “Menthol is an additive.” In this case, the packaging indicates only that organic menthol
and organic tobacco are ingredients. There are many reasons why a reasonable consumer would
conclude that the ingredients list does not contradict the additive-free descriptor. For example, a
50
Perique tobacco is a type of tobacco associated with Louisiana.
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reasonable consumer could presume that the FDA requires cigarette packaging to separately label
menthol. Moreover, faced with conflicting representations, one clear and the other ambiguous, the
reasonable consumer follows the clear one. Cf. In re Universal Service Fund Telephone Billing
Practice Litig., 619 F.3d at 1218.51
51
In concluding that the Safer-Cigarette and Menthol Theory may proceed, the Court notes a
recent decision in which the Seventh Circuit, reviewing an opinion that the Honorable Lynn
Adelman, United States District Judge for the Eastern District of Wisconsin wrote, reversed a district
court’s class-action settlement approval arising from Subway sandwich’s purportedly deceptive
conduct. See In re: Subway Footlong Sandwich Marketing and Sales Practices Litigation, 869 F.3d
551 (7th Cir. 2017)(“Subway”). In Subway, the plaintiffs alleged that Subway had deceived them
with their foot-long sandwich marketing campaign, because, sometimes, the bread was not 12 inches
in length. See Subway, 869 F.3d at 553-54. The plaintiffs sought an injunctive class certification
under rule 23(b)(2), and the district court approved a class-action settlement, which commanded
Subway to institute procedures for four years to keep their bread measured at least 12 inches long.
See 869 F.3d at 554. The Seventh Circuit, however, vacated that class-action settlement agreement,
because it yielded no meaningful relief for the class. See 869 F.3d at 556. The Seventh Circuit
reasoned that, regardless of sandwich length, consumers received the same food amount based on the
bread’s weight, Subway Sandwiches’ standardized meat and cheese portions, and its liberal food
topping policy. See 869 F.3d at 556. It also reasoned that the settlement’s new bread-measuring
protocols did nothing for the class, because “there’s still the same small chance that Subway will sell
a class member a sandwich that is slightly shorter than advertised,” so “the injunctive relief approved
by the district judge is utterly worthless” and the class-action “should have been dismissed out of
hand.” 869 F.3d at 556-57 (emphasis in original).
It is the Court’s understanding that Subway never filed a motion to dismiss. See In re
Subway Footlong Sandwich Marketing and Sales Practices Litig., No. 13-2439 (E.D. Wis.
2013)(Dkt.). It is clear that Judge Adelman thought the Subway case lacked merit, see In re Subway
Footlong Sandwich Marketing and Sales Practices Litig., 316 F.R.D. 240, 242-43, 246-47 (E.D. Wis.
2016)(Adelman, J.), but Subway never filed a motion to dismiss the complaint, so the district court
was never invited to pass on the wisdom of the case. The Seventh Circuit’s opinion puts all district
judges in a difficult position. If the defendant does not file a motion to dismiss and enters into a
settlement, most district judges will not, sua sponte, dismiss a case because it is not a “good” case;
such a dismissal will likely be reversed by most Courts of Appeals. The Court is inclined to think
that the Subway case is unique and does not conclude that district courts have any roving, inherent
ability to decide which class actions “should . . . [be] dismissed out of hand” as the Seventh Circuit
suggests. Subway 869 F.3d at 557.
In any case, even at 30,000 feet, given that the Court is allowing two of the Plaintiffs’
theories to proceed, the Court concludes that the Court should not dismiss the case as “utterly
worthless” that “should . . . [be] dismissed out of hand.” Subway 869 F.3d at 557. The Court
allows the case to proceed, albeit with one theory of deception dismissed.
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The packaging’s and advertising’s “natural” descriptors do not, however, plausibly mislead a
reasonable consumer into believing that Natural American tobacco is less processed than tobacco in
other cigarettes. As the Court discusses below, natural is a word with many meanings. See infra, at
188. Any meaning is, thus, context dependent. A reasonable consumer comes to the market with a
degree of background knowledge.
See Ibarrola v. Kind, LLC, 83 F. Supp. 3d 751, 757
(N.D. Ill. 2015)(Ellis, J.). In this case, a reasonable consumer knows that tobacco undergoes
engineering processes before it is sold in cigarettes. Such awareness is clear from visually
comparing a tobacco leaf to a cigarette. In order to mislead a reasonable consumer, the descriptor at
issue must, thus, rebut the reasonable consumer’s background knowledge. The natural descriptor
found on Natural American cigarette’s advertising and labeling is not enough to negate a reasonable
consumer’s understanding that turning tobacco into cigarettes requires processing, nor is it enough to
suggest that Natural American tobacco undergoes less processing than other cigarette’s tobacco.
The term natural most often modifies “tobacco” on the Defendants’ products and advertising. See
Natural American Labeling at 64-111 on CM/ECF; Tobacco & Water Advertisement at 114 on
CM/ECF. With that context, the natural descriptor says little, if anything, about the engineering
processes; it says something about the type of tobacco. The Defendants’ other use of natural is in the
brand name: Natural American Spirit. Construing similar statutes, other federal courts have
determined that brand names carry less persuasive impact on a reasonable consumer than other
product labeling. See, e.g., Miller v. Ghirardelli Chocolate Co., 912 F. Supp. 2d 861, 874 (N.D.
Cal. 2012)(Beeler, J.)(noting that the Froot Loops and Crunch Berry brand names did not deceive a
reasonable consumer into believing that those cereals contained real fruit); Shaker v. Nature’s Path
Foods, Inc., No. 13-1138, 2013 WL 6729802, at *5 (C.D. Cal. December 16, 2013)(Wu, J.)(“Aside
from the fact that the ‘OPTIMUM®’ used here is a registered brand name, any reasonable consumer
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would understand that the word is not a specific and objective representation.”); Howard v. Bayer
Corp., 2011 WL 13224118, at *1 (E.D. Ark. July 22, 2011)(Marshall Jr., J.)(“A reasonable consumer
of any medicine or medicine medicine-like substance such as vitamins would not stop with the brand
name.”). The underlying rationale is that reasonable consumers know that brand names are often
creative and that substantive information about the product is less likely to be located there.
Although conceivable that the natural term and the surrounding American Indian imagery
communicates to some consumers that Natural American cigarette’s tobacco is less processed than
other cigarette’s tobacco, the Court concludes that a reasonable consumer would not believe that
Natural American tobacco is less processed from the brand name alone.
V.
THE FIRST AMENDMENT DEFENSE FAILS.
The Defendants argue that the First Amendment shields them from all liability. See MTD at
20. Their First Amendment defense fails, however, for two reasons. First, the state action doctrine
precludes the claims premised on contract-related theories. Second, the tort-related claims may
proceed, because those claims pass the Central Hudson balancing test. The Court considers each in
turn.
A.
THE STATE ACTION DOCTRINE PRECLUDES THE DEFENDANTS’
FIRST AMENDMENT DEFENSE FOR THE PLAINTIFFS’ CONTRACTRELATED CLAIMS, BECAUSE CONSENSUAL CONTRACTUAL
RELATIONS DO NOT IMPLICATE STATE ACTION.
“Congress shall make no law . . . abridging the freedom of speech.” U.S. Const. amend. I.52
This clause -- the Free Speech Clause -- may act as a shield to liability when otherwise illegal or
unlawful conduct implicates a party’s freedom of speech. See Marsh v. Alabama, 326 U.S. at 509
(ruling that the Free Speech Clause shielded a Jehovah’s Witness who distributed religious material
52
The First Amendment is applicable to the states and their state legislatures via the
Fourteenth Amendment’s due process clause. See Virginia State Bd. of Pharm. v. Virginia Citizens
Consumer Council, Inc., 425 U.S. 748, 749 n.1. (1976)
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on a company town’s sidewalk from criminal trespass charges). “It is, of course, [] commonplace
that the constitutional guarantee of free speech is a guarantee only against abridgment by
government, federal or state.” Hudgens v. N.L.R.B, 424 U.S. at 513. State action, thus, is typically
a prerequisite for First Amendment protections. See Hudgens v. N.L.R.B, 424 U.S. at 520-21.
For most of American history, enforcing the common law was not thought to implicate state
action. See Daniel J. Solove & Neil M. Richards, Rethinking Free Speech and Civil Liability, 109
Colum. L. Rev. 1650, 1656 (2009); Coppage v. Kansas, 236 U.S. at 17 overruled in part Phelps
Dodge Corp. v. N.L.R.B., 313 U.S. 177, 187 (1941). After the New Deal, however, the state action
doctrine underwent a radical transformation, and the Supreme Court ruled that various judicial
actions amounted to state action where, previously, those actions likely would not have. See Shelley
v. Kraemer, 334 U.S. 1, 18-19 (1948)(ruling that judicial enforcement of racially restrictive
covenants is state action); New York Times Co. v. Sullivan, 376 U.S. 254, 265 (1964)(holding that
state adjudication of a libel lawsuit is state action); Cohen v. Cowles Media Co., 501 U.S. 663, 668
(1991)(“Our cases teach that the application of state rules of law in state courts in a manner alleged
to restrict First Amendment freedoms constitutes ‘state action.’”). Thus, as the Supreme Court has
recently reaffirmed, the Free Speech Clause “can serve as a defense in state tort suits.” Snyder v.
Phelps, 562 U.S. 443, 451 (2011). See N.A.A.C.P. v. Claiborne Hardware Co., 458 U.S. 886 n.51
(1982)(“Although this is a civil lawsuit between private parties, the application of state rules of law
by the Mississippi state courts in a manner alleged to restrict First Amendment freedoms constitutes
‘state action’ under the Fourteenth Amendment.”). The Supreme Court has also held that
promissory estoppel claim, “enforced through the official power of the . . . courts,” amounts to state
action. Cohen v. Cowles Media Co., 501 U.S. at 668. In a similar vein, the Tenth Circuit has
determined that a dispute over property rights, which arise from positive statutory law implicates
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state action. See Cardtoons, L.C. v. Major League Baseball Players Ass’n, 95 F.3d at 968. See also
L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F.2d 26, 30 n.2 (1st Cir. 1987).
The state action doctrine as applied to judicial enforcement of common-law claims has limits.
See Solove & Richards, Rethinking Free Speech and Civil Liability, 109 Colum. L. Rev. at 1664.
For example, the Supreme Court has limited the same state action rationale in the common-law
property-law context. See Hudgens v. N.L.R.B., 424 U.S. at 513; Lloyd Corp., Ltd. v. Tanner, 407
U.S. 551, 570 (1972). In Hudgens v. N.L.R.B., the Supreme Court considered whether the First
Amendment protects union members picketing in a privately owned shopping center from a threat of
criminal trespass charges. See 424 U.S. at 508. In considering that issue, the Supreme Court
explained:
It is, of course, a commonplace that the constitutional guarantee of free speech is a
guarantee only against abridgement by government, federal or state. Thus, while
statutory or common law may in some situations extend protection or provide redress
against a private corporation or person who seeks to abridge the free expression of
others, no such protection or redress is provided by the Constitution itself.
Hudgens v. N.L.R.B., 424 U.S. at 513 (citation omitted). In ruling that the First Amendment did not
apply, the Supreme Court emphasized: “In addressing this issue, it must be remembered that the First
and Fourteenth Amendments safeguard the rights of free speech and assembly by limitations on
State action, not on action by the owner of private property used nondiscriminatorily for private
purposes only.” Hudgens v. N.L.R.B., 424 U.S. at 519 (quoting Lloyd Corp., Ltd. v. Tanner, 407
U.S. at 567). See Central Hardware Co. v. N.L.R.B., 407 U.S. 539, 547 (1972)(“The First and
Fourteenth Amendments are limitations on state action, not action by the owner of private property
used only for private purposes.”). The Supreme Court concluded, thus, that the First Amendment
offers no protection to the picketers, because the shopping center was a private entity and not “the
functional equivalent of a municipality.” Hudgens v. N.L.R.B., 424 U.S. at 520. But see
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Cardtoons, L.C. v. Major League Baseball Players Ass’n, 95 F.3d at 968 (ruling that adjudicating
property rights arising from statutory law “satisfies the state action requirement”).
Several United States Courts of Appeals have determined that state action is also not
implicated when a court adjudicates a dispute between two parties that arises from a consensual
contractual relationship. See, e.g., United Egg Producers v. Standard Brands, Inc., 44 F.3d 940, 943
(11th Cir. 1995)(“United Egg”). In United Egg, for example, one private party to a settlement
agreement challenged the settlement agreement on First Amendment grounds. See United Egg, 44
F.3d at 942. The Eleventh Circuit concluded that the state action doctrine barred the First
Amendment defense. See 44 F.3d at 943. Although noting that Shelly v. Kraemer “held that court
enforcement of an agreement between private parties can, in some circumstances, be considered
governmental action,” the Eleventh Circuit cabined that decision to “the racial discrimination
context.” 44 F.3d at 943. It explained: “That parties be able to enter into enforceable settlement
agreements as a means of ending controversies is a good thing. And we, in the absence of
compelling authority, are slow to interfere with or to undercut settlements of commercial disputes.”
44 F.3d at 943. The Third Circuit has similarly explained that there are two categories of state action
cases: “cases in which state courts enforced the right of private persons to take actions which are
permitted but not compelled by law and . . . cases in which state courts enforced laws which require
or forbid certain actions to be taken.” Parks v. “Mr. Ford”, 556 F.2d 132, 135 n.6a (5th Cir. 1977).
In the first category of cases “state action has been found when the doctrine of Shelley and Barrows
[v. Jackson, 346 U.S. 249 (1953)], has been found applicable, and that doctrine has been limited to
cases involving racial discrimination,” and, in the second category of cases, “state action has been
found routinely.” Parks v. “Mr. Ford”, 556 F.2d at 135 n.6a. See Democratic Nat. Committee v.
Republican Nat. Committee, 673 F.3d 192, 204 (3d Cir. 2012)(“Although a court’s enforcement of a
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consent decree can constitute state action under Shelley, . . . [t]he Supreme Court has declined to find
state action where the court action in question is a far cry from the court enforcement in
Shelley.”)(citing Blum v. Yaretsky, 457 U.S. 991, 1004-05 (1982)); Naoko Ohno v. Yuko Yasuma,
723 F.3d 984, 998 (9th Cir. 2013)(“In the context of First Amendment challenges to speechrestrictive provisions in private agreements or contracts, domestic judicial enforcement of terms that
could not be enacted by the government has not ordinarily been considered state action.”)
In sum, state action exists if the dispute is tort-related or if the rights arise from a state
statute, but does not exist if the dispute arises from a contractual relationship or involves commonlaw property rights, unless a non-judicial state actor is involved or if racial discrimination is
implicated. One way to conceive of the state action test is to question whether consent existed for
the underlying private relationship at issue. If yes, there is no state action. If no, state action exists.
With that test in mind, the state statutory claims implicate state action. See Cardtoons, L.C.
v. Major League Baseball Players Ass’n, 95 F.3d at 968. The unjust-enrichment claims also
implicate state action, because unjust enrichment arises from an absence of a consensual contractual
relationship. See Restatement (Third) of Restitution and Unjust Enrichment § 1 cmt. b (“Unjust
Enrichment is enrichment that lacks an adequate legal basis. . . . Broadly speaking . . . [it involves a
transaction] that is nonconsensual.”)(emphasis in original). Cf. Cohen v. Cowles Media Co., 501
U.S. at 668 (ruling that a promissory-estoppel claim implicates state action). The express warranty
claim, however, arises from a consensual contractual relationship -- consumer contracts -- so they do
not implicate state action. The First Amendment, therefore, is not a defense for the express warranty
claims.
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B.
THE FIRST AMENDMENT DOES NOT PRECLUDE THE STATUTORY
AND UNJUST-ENRICHMENT CLAIMS BASED ON THE PLAINTIFFS’
THREE THEORIES, BECAUSE NATURAL AMERICAN CIGARETTES’
DESCRIPTORS ARE INHERENTLY OR ARE IN FACT MISLEADING.
The speech at issue is commercial speech. As noted previously, the Supreme Court’s First
Amendment decisions have created a rough hierarchy in the constitutional protection of speech. See
Snyder v. Phelps, 562 U.S. at 452. Commercial speech occupies a middle tier of protected speech,
see Zaurderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 637
(1985), and the following characteristics indicate that speech is commercial: (i) if the speech is
contained in an advertisement; (ii) if it is made with an economic motive; (iii) or if it refers to a
specific product. See Proctor & Gamble Co. v. Haugen, 222 F.3d at 1274. The parties agree that
the speech at issue is commercial, see MTD at 20; Response at 18, and the Court agrees. The speech
is made with an economic motive, refers to a specific product, and some of it is contained within an
advertisement. See Amendment Complaint ¶ 43, at 17-20 (displaying the print advertisements with
the contested speech); id. ¶ 44, at 21-22 (alleging that the Defendants used the terms “additive-free”
and “natural” as part of an advertisement campaign to increase sales)
There is a four-part test to determine whether the First Amendment shields commercial
speech from governmental intervention. First, a court must determine “whether the particular
advertisement is protected speech -- i.e., whether it concerns lawful activity and is not misleading.”
Revo, 106 F.3d at 932. If the speech is inherently misleading, “the speech may be freely regulated.”
Revo, 106 F.3d at 932. If the speech is not misleading or is only potentially misleading, the state
may regulate the speech as long as “the government can show that (1) it has a substantial state
interest in regulating the speech, (2) the regulation directly and materially advances that interest, and
(3) the regulation is no more extensive than necessary to serve the interest.” Revo, 106 F.3d at 932
(citations omitted).
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In considering the threshold inquiry -- whether the speech concerns lawful activity and is not
misleading -- there is a distinction between inherently misleading speech, in-fact misleading speech,
and potentially misleading speech. See In re R.M.J., 455 U.S. at 203 (“[W]hen the particular content
or method of the advertising suggests that it is inherently misleading or when experience has proved
that in fact such advertising is subject to abuse, the States may impose appropriate restrictions.”).
Inherently misleading speech is “incapable of being presented in a way that is not deceptive.” Revo,
106 F.3d at 929. In Revo, for example, the Tenth Circuit considered whether direct mailing
advertisements from a personal injury attorney “inevitably convey a false message that soliciting
lawyers are more experienced, tougher, more skillful, and better qualified than non-soliciting
lawyers, notwithstanding the fact that the letters themselves make no reference to those attributes.”
106 F.3d at 933. The Tenth Circuit concluded that the mailings could not be inherently misleading,
because the defendants “offer[ed] no proof that some other qualified lawyer who could superbly
represent personal injury victims would nevertheless be misleading potential clients simply by
sending a direct mail solicitation.” 106 F.3d at 933. Thus, to determine whether speech is inherently
misleading, the proper inquiry is to consider whether there are any circumstances under which the
speech could be truthful; if it could possibly be truthful, the speech is not inherently misleading. See
106 F.3d at 933.
“Natural,” “organic,” and “additive-free” descriptors attached to Natural American cigarettes
are not inherently misleading under Central Hudson and Revo with respect to the Safer-Cigarette
Theory. Natural, organic, and additive-free do not, inherently, mean healthy or safe. See Oxford
English Dictionary (online ed. 2017)(defining natural as “[e]xisting in or derived from nature; not
made or caused by humankind”); id. (defining organic as “[r]elating to or derived from living
matter”); id. (defining additive-free as “(especially of food), containing no additives”). The Court
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concludes that a cigarette manufacturer could create, package, and sell cigarettes that were natural,
organic, and additive-free without lying. The most ready example is a manufacturer who grows
tobacco, wraps it up, and sells it.
The Menthol Theory, however, imposes liability for inherently misleading speech. This
analysis diverges from the above, because additive-free’s meaning exists in direct conflict with the
menthol’s presence in the cigarette. Menthol is an additive. Therefore an additive-free cigarette
cannot have menthol. It is not possible for some other cigarette manufacturer to produce a menthol
cigarette that is additive free and truthfully advertise it as such.
To rebut that conclusion, the Defendants argue that the menthol is added to the cigarette
filters, and not the tobacco, so the additive-free natural tobacco label is truthful, because the menthol
is not added to the tobacco. See MTD at 24. The Defendants admit, however, that, when the
cigarette is smoked, inevitably the menthol intermingles with the tobacco. See June Tr. at 43:19-23
(Court, Schultz). See June Tr. at 43:6-8 (Schultz). The Court concludes that this eventual
commingling makes the menthol modifier inherently misleading. The Court cannot see how another
cigarette manufacturer could create a cigarette with menthol in the filter that never commingles with
the tobacco. The Defendants’ final argument that any misunderstanding could be dispelled through a
new disclosure, see MTD at 24-25, misapprehends the inherently misleading test. The Court cannot
assume in new disclosures otherwise no speech would be inherently misleading. Any assumed
disclosure could cure deception with a simple explanation that the inherently misleading speech is a
lie.
Finally, the descriptors are not inherently misleading with respect to the UnprocessedCigarette Theory. The analysis largely mirrors the Safer-Cigarette Theory analysis above. It is
possible that a cigarette manufacturer could create a cigarette, label it natural, and not subject it to
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rigorous engineering processes. As explained, a cigarette company could harvest the tobacco, roll it
up without adding anything to it, and sell it. Accordingly, under Revo, that modifier is not
inherently misleading.
Those conclusions do not end the Court’s analysis, however. A court may also forego the
remaining Central Hudson factors if the commercial speech is, in fact, misleading. See In re R.M.J.,
455 U.S. at 203 (“[W]hen the particular content or method of the advertising suggests that it is
inherently misleading or when experience has proved that in fact such advertising is subject to abuse,
the States may impose appropriate restrictions.”); Peel v. Attorney Registration and Disciplinary
Com’n of Ill., 496 U.S. at 111 (1990)(Marshall, J. concurring)(“States may prohibit actually or
inherently misleading commercial speech entirely.”); Revo, 106 F.3d at 933 (“In addition, the Board
offers no evidence that anyone was actually deceived by Mr. Revo’s letters.”). The Court concludes
that the Plaintiffs plausibly allege that they or others were in fact misled under the Safer-Cigarette
Theory. As the Tenth Circuit’s language in Revo suggests, the in-fact test diverges from whether a
consumer or reasonable consumer is misled under the same theory; the standard here is subjective
instead of objective. The Plaintiffs allege that the Defendants uniformly advertise and label their
cigarettes as natural and additive-free, see Amended Complaint ¶¶ 42-43, at 16, and have done so
throughout the Defendants’ history, see Amended Complaint ¶ 44, at 21; the Natural American
Labels and Tobacco & Water Advertisement judicially noticed, support that allegation, see First JN
Motion at 1-2. The Court concludes that it is plausible that, because of the Defendants’ pervasive
advertising campaign and uniform labeling, the Plaintiffs were exposed to those terms when they
purchased their Natural American cigarettes. The Plaintiffs also allege that a study supports the
finding that “smokers . . . frequently concluded that ‘natural’ cigarettes must be healthier or safer
than cigarettes containing chemicals.” Amended Complaint ¶ 50, at 23 (citing McDaniel, Patricia A.
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& Ruth E. Malone, I Always Thought They Were All Pure Tobacco: American Smokers’
Perceptions of “Natural” Cigarettes and Tobacco Industry Advertising Strategies, 16 Tobacco
Control e7 (2007), available at http://www.ncbi.nlm.nih.gov/p mc/articles/PMC2807204/. See id.
¶ 52, at 24 (“Consumers believe that cigarettes marketed with [natural, organic, and additive-free]
and similar descriptors are significantly more appealing, healthier or less harmful than packages
without these descriptors.”). Another study which they cite also concludes that over sixty percent of
Natural American smokers believed their brand was less harmful than other cigarette brands. See
Amended Complaint ¶ 52, at 24 (Misperceptions at 1). Finally, the plaintiffs allege that Natural
American cigarettes are not safer or healthier than other cigarette brands.
See Amended
Complaint ¶ 59, at 29. Based on the foregoing allegations, the Court concludes that it is plausible
that the named plaintiffs were deceived into believing that Natural Americans cigarettes were safer
or healthier than other cigarettes, because of Natural Americans branding and advertising. See
Amended Complaint ¶¶ 12-23, at 4-11. The advertising and labeling disclosures do not undermine
this conclusion, because there is no evidence that the plaintiffs read those disclosures. Moreover,
even if they had read them, the disclosures speak only to the “no additive” modifier and not to the
“organic” or “natural” terms. Natural American Labeling at 64-111 on CM/ECF; Tobacco and
Water Advertising at 114 on CM/ECF.
Assuming that the Defendants’ representations vis-à-vis the Menthol Theory were not
inherently misleading, they were in fact misleading. Menthol cigarettes were also uniformly
advertised and packaged as “additive-free.” See Amended Complaint ¶¶ 42-43, at 16. See also Dark
Green Label; Green Label. As explained above, the terms menthol and “additive-free” are at odds.
The Court concludes it is plausible that the plaintiffs were deceived pursuant to the Menthol Theory.
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The Court also concludes that the Plaintiffs were deceived pursuant to their UnprocessedCigarette Theory. The Unprocessed-Cigarette Theory’s nub is that the term natural suggests that
Natural American cigarettes are subjected to fewer engineering processes than other cigarettes. The
Amended Complaint lacks allegations that the plaintiffs believed that Natural American cigarettes
were less processed than other cigarettes. See Amended Complaint ¶¶ 12-23, at 4-11. Nevertheless,
the Court concludes that it is plausible that the term “natural” alone would lead these particular
plaintiffs, although not a reasonable consumer, to believe that Natural American cigarettes are
subjected to fewer engineering processes than other cigarettes.
C.
THE FIRST AMENDMENT DEFENSE ALSO FAILS, BECAUSE EACH OF
THE PLAINTIFFS’ THEORIES SATISFIES THE CENTRAL HUDSON
TEST.
Assuming that the three theories are not inherently or factually misleading, those theories
satisfy Central Hudson’s intermediate scrutiny threshold. If speech is potentially misleading or not
misleading, the state may regulate the speech as long as “the government can show that (1) it has a
substantial state interest in regulating the speech, (2) the regulation directly and materially advances
that interest, and (3) the regulation is no more extensive than necessary to serve the interest.” Revo,
106 F.3d at 932 (citations omitted). See Central Hudson, 447 U.S. at 564.
When adjudicating the Central Hudson test, the Supreme Court and the Tenth Circuit have
identified several substantial governmental interests in regulating speech. See Central Hudson, 447
U.S. at 568 (ruling that the government has a substantial governmental interest in energy
conservation); Florida Bar v. Went For It, Inc., 515 U.S. 618, 625-26 (1995)(holding that “protecting
the privacy and tranquility of personal injury victims and their loved ones against intrusive,
unsolicited contact by lawyers” is a substantial interest); Utah Licensed Beverage Ass’n v. Leavitt,
256 F.3d 1061, 1070 (10th Cir. 2001)(holding that promoting temperance and supplying revenue are
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substantial governmental interests). In the tobacco context, the Supreme Court has recognized that
there is a substantial governmental interest in preventing minors from using tobacco. See Lorillard
Tobacco Co. v. Reilly, 533 U.S. 525, 555 (2001). “Unlike rational basis review, the Central Hudson
standard does not permit [a court] to supplant the precise interests put forward by the State with
other suppositions.” Florida Bar v. Went For It, Inc., 515 U.S. 618, 624 (1995)(quoting Edenfield v.
Fane, 507 U.S. 761, 768 (1993)).
The Plaintiffs argue that there is a substantial governmental interest in protecting consumers
from misleading speech, see Response at 19, 21, and the Court agrees that this interest suffices, see
Central Hudson, 447 U.S. at 564; Zauderer v. Office of Disciplinary Counsel of Supreme Court of
Ohio, 471 U.S. at 650. The Defendants argue that there is no substantial interest in preventing
deception under the Unprocessed-Cigarette Theory, because the term “natural” has no ascertainable
meaning. See MTD at 28. The Defendants continue that the only way there could be a substantial
interest in regulating that term would be if there is an interest in prohibiting every manufacturer of
natural products. See MTD at 28. The Court concludes, however, that the government has an
interest in regulating a word with an underdeterminate meaning. Although perhaps less dangerous
than representations that are demonstrably false, words with many meanings or unclear meanings
have a capacity to mislead, because consumers can interpret them in ways that do not reflect reality.
Central Hudson’s next step -- determining whether the speech restriction directly and
materially advances the asserted government interest -- requires more than just “mere speculation or
conjecture” that the speech restriction will advance the interest. Lorillard Tobacco Co. v. Reilly, 533
U.S. at 555. “[R]ather, a governmental body seeking to sustain a restriction on commercial speech
must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to
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a material degree.” Lorillard Tobacco Co. v. Reilly, 533 U.S. at 555 (quoting Greater New Orleans
Broadcasting Assoc., Inc. v. United States, 527 U.S. at 188). To satisfy the third step,
[w]e do not, however, require that “empirical data come . . . accompanied by a surfeit
of background information. . . . [W]e have permitted litigants to justify speech
restrictions by reference to studies and anecdotes pertaining to different locales
altogether, or even, in a case applying strict scrutiny, to justify restrictions based
solely on history, consensus, and “simple common sense.”
Lorillard Tobacco Co. v. Reilly, 533 U.S. at 555 (quoting Florida Bar v. Went For It, Inc., 515 U.S.
at 628). In Lorillard Tobacco Co. v. Reilly, for example, the Supreme Court concluded that a
regulation banning smokeless tobacco advertising within 1,000 feet of schools advances a
governmental interest in protecting minors from using tobacco, because many studies support the
proposition that minors’ smokeless tobacco use has increased, and other studies demonstrate a link
between advertising and a demand for smokeless tobacco products. See 533 U.S. at 557-61.
Similarly, here, the Plaintiffs have alleged that several studies indicate that consumers
connect natural, organic, and additive-free with a healthier product, see Amended Complaint ¶¶ 5054, 23-27, so implementing an injunction requiring the Defendants to remove those terms or
awarding money damages, which would likely lead to the Defendants removing or modifying those
terms, would advance the government’s interest in protecting consumers from that deceptive speech.
Comparable reasoning holds true in the Menthol and Unprocessed-Cigarette Theory contexts as well,
because removing or modifying the additive-free and natural terms directly targets the deception and
would relieve it entirely. A consumer would not believe that a cigarette is additive-free or natural
without those terms present. The Defendants contend, however, that money damages or an
injunction do not materially advance the interest in protecting consumers from deception, because:
(i) the pre-existing disclosures cure any deception whether Natural American cigarettes are safer or
healthier; and (ii) the menthol labeling puts menthol purchasers on notice that they are purchasing
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cigarettes with additives, even though the cigarettes are labeled with “no additives.” In sum, they
argue that there is no deception. Regarding the pre-existing disclosures, again, the disclosures refer
only to the “no additive” descriptor, and not the “organic” or “natural” descriptors, so an injunction
or damages would still materially advance the government’s interest in dissuading deception arising
from the natural and organic adjectives. Moreover, while disclosures or disclaimers usually dispel
some deception, some representations are so misleading that disclaimers cannot dispel the
misleading information, see Pearson v. Shalala, 164 F.3d 650, 659 (D.C. Cir. 1999), and some
disclosures’ size and placement limit their effectiveness, see F.T.C. v. Brown & Williamson
Tobacco Corp., 778 F.2d 35, 43 (D.C. Cir. 1985)(“This fine-print legend, moreover, often appears in
virtually illegible form, placed in an inconspicuous corner of Barclay advertisements.”). The Court
concludes that, in light of the disclosures’ placement underneath the barcode and divorced from the
Surgeon General’s warning, money damages or an injunction would materially advance the state’s
interest even as to the “additive-free” term, because a substantial number of consumers would not
think to look there for that disclosure, or would not even see the disclaimer until after they were
deceived into paying a premium for Natural American cigarettes. The Defendants’ menthol labeling
argument fails, because it assumes that a majority of menthol purchasers are so secure in their
knowledge that menthol is an additive that an express representation to the contrary does not mislead
them into thinking that menthol is not an additive.53
53
The Court notes here that many menthol users are young, inexperienced smokers. See
Michael Freiberg, The Minty Taste of Death: State and Local Options to Regulate Menthol in
Tobacco Products, 64 Cath. U. L. Rev. 949, 951 (2015)(“Menthol is consumed by nearly half of all
youth smokers.”)(citing National Survey on Drug Use and Health, Use of Menthol Cigarettes, at 2-3
(2009) available at https://archive.samhsa.gov/data/2k9/134/134MentholCigarettes.htm (noting that
“[p]ast month use of menthol cigarettes was more likely among smokers who started in the past 12
months than among longer term smokers”)). The Court concludes that menthol smokers’ relative
youth or inexperience makes it more likely that governmental interference would materially advance
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In considering the final factor -- that the regulation is no more extensive than necessary to
serve the governmental interest -- the Supreme Court has cautioned that it is not a “least-restrictivemeans requirement.” Board of Trustees of State University of New York v. Fox, 492 U.S. 469, 478
(1989). Rather, as “commercial speech [enjoys] a limited measure of protection, commensurate with
its subordinate position in the scale of First Amendment values,” the “ample scope of regulatory
authority suggested . . . would be illusory if it were subject to a least-restrictive-means requirement,
which imposes a heavy burden on the State.” Board of Trustees of State University of New York v.
Fox, 492 U.S. at 477 (alteration in original). The money damages requested meet this requirement.
Money damages encourage the Defendants to add additional disclosures or move their current
disclosures to a more prominent location, lest they be exposed to additional liability. Yet moving or
adding disclosures might not be enough to fully serve the governmental interest in protecting
consumers from the deceptions at issue, See Pearson v. Shalala, 164 F.3d at 659 (holding that some
deceptions are so misleading that explanatory disclosures do not cure the deception), so an
injunction, depending on whether the deceptive speech may be cured by disclosures, might also meet
this requirement, see In re R.M.J., 455 U.S. at 203. At this stage in the litigation, the Court cannot
decide on the pleadings alone whether an injunction would be more prohibitive than necessary, but it
is plausible that it would not be. Accordingly, the Court concludes that the Plaintiffs’ deception
theories meet the Central Hudson standard, and the First Amendment is no bar to their case.
VI.
THE STATE STATUTES’ SAFE HARBORS, EXCEPT FOR ILLINOIS’ DO NOT
BAR RELIEF.
The Defendants contend that the state statutes the Plaintiffs invoke are subject to safe
harbors, which protect conduct that federal law or policy authorizes from liability. See MTD at 31.
their stated goal of dispelling deception, because younger and inexperienced smokers are less likely
to know what menthol is.
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They contend that the Consent Order authorizes the descriptors challenged, so the Plaintiffs’ claims
are barred. See MTD at 31. The Court concludes that the Illinois statutes bar the Plaintiff’s claims
insomuch as they are premised on the “additive-free” descriptor, but the remaining state statutes do
not.
A.
CALIFORNIA’S SAFE HARBOR DOES NOT BAR RELIEF.
The Supreme Court of California has determined that the UCL is subject to a safe harbor that,
“[i]f the Legislature has permitted certain conduct or considered a situation and concluded no action
should lie, courts may not override that determination.” Cel-Tech, 973 P.2d at 541. “To forestall an
action under the unfair competition law, another provision must actually ‘bar’ the action or clearly
permit the conduct.” Cel-Tech, 973 P.2d at 541. “There is a difference between (1) not making an
activity unlawful, and (2) making that activity lawful.” Cel-Tech, 973 P.2d at 541. Since Cel-Tech,
California Courts and federal courts reviewing California law have extended the safe harbor doctrine
to CLRA and California’s False Advertising law. See Parent v. MillerCoors LLC, No. 15-1204,
2015 WL 6455752, at *4 (S.D. Cal. October 26, 2015)(Curiel, J.); Lopez v. Nissan N. Am., Inc., 135
Cal. Rptr. 3d 116, 134 (Cal. Ct. App. 2011).54
In Cel-Tech the Supreme Court of California explained that “the Legislature’s mere failure to
prohibit an activity does not prevent a court from finding it unfair,” and that, conversely, “courts
may not use the unfair competition law to condemn actions the Legislature permits.” Cel-Tech, 973
P.2d at 542. The question in this case is whether the Consent Order permits the descriptors at issue
54
The Supreme Court of California has not determined whether the safe harbor should be
extended to the CLRA and California’s False Advertising Law. The Court concludes that the
Supreme Court of California would extend the safe harbor to those two laws, because the great
weight of authority interpreting those laws has extended the safe harbor to them, and the Supreme
Court of California’s rationale for creating a safe harbor to the UCL, i.e., the UCL’s sweeping scope
cannot be used to contradict the Legislature’s express legislation to the contrary, applies with equal
force to the CLRA and the False Advertising Law.
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or prohibits them. California caselaw provides little guidance on that distinction, but the test appears
to be one of degree and context. For example, legislation expressly immunizing conduct from
liability amounts to permission, whereas a robbery law’s failure to prohibit murder does not amount
to permission to commit murder. See Cel-Tech, 973 P.2d at 541. Here, the Consent Order is an
agreement that, subject to certain conditions, the FTC will not bring an enforcement action. The
Consent Order is, thus, not as clearly permissive as the express immunity from suit is, but it also
diverges from the robbery example, because the order bears directly on the Defendants’ actions.
Bearing that test in mind, the Court concludes that the Supreme Court of California would
rule that the Consent Order does not authorize the Defendants’ allegedly misleading conduct.
Although the context suggests that the Consent Order permits the descriptors, the Consent Order’s
degree of permission is dispositive. As already explained, the Consent Order does not expressly
authorize conduct; it states only that the agency will not to bring an enforcement action. An
agreement not to enforce conveys, at best, a minimum level of approval and, at worst, indifference.
Moreover, a consent order is far more fragile than express legislative authorization. Agencies might
disagree, as the FDA and FTC have in this case, or the agency may later change its position for some
other reason. Accordingly, an agreement not enforce does not amount to permission. This
conclusion is in accord with other federal and State Supreme Court cases. See, e.g., United States v.
Philip Morris USA Inc., 566 F.3d 1095, 1125 (D.C. Cir. 2009)(“Although the FTC never prevented
Defendants from using misleading descriptors, ‘agency nonenforcement of a federal statute is not the
same as a policy of approval.’”)(quoting Altria II, 555 U.S. at 89); Aspinall II, 902 N.E.2d at 424-26
(citing Altria II, 555 U.S. at 89 n.13). The Court concludes, thus, that the UCL’s, the CLRA’s, and
California’s false advertising law’s safe harbors do not bar relief.
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B.
COLORADO’S, FLORIDA’S, MASSACHUSETTS’, MICHIGAN’S, NEW
JERSEY’S, NEW MEXICO’S, NEW YORK’S, NORTH CAROLINA’S, AND
WASHINGTON’S SAFE HARBORS DO NOT BAR RELIEF.
The Defendants also contend that Colorado, Florida, Massachusetts, Michigan, New Jersey,
New Mexico, New York, North Carolina, and Washington law bar relief for largely the same reason
that California law does. See MTD at 32-39. Each of those states provides a safe harbor similar to
California’s. See Colo. Rev. Code § 6-1-106(1)(a); Fla Stat. § 501.212(1) Mass. Gen. Laws. Ch.
93A, § 3; Mich. Comp. Laws § 445.904(1)(a); Lemelledo, 696 A.2d at 554; N.M. Stat. Ann. § 5712-7; N.Y. Gen. Bus. Law § 349(d), § 350-d; Ellis v. Norther Star Co., 388 S.E.2d at 131; Wash.
Rev. Code § 19.86.170. After considering the states’ Supreme Court caselaw on their respective safe
harbors, the Court concludes that these safe harbors do not apply for largely the same reasons it
concluded that the California safe harbors did not apply. The Court considers each state briefly in
turn.
1.
Colorado Law Does Not Bar Relief.
The CCPA does not apply to “[c]onduct in compliance with the orders or rules of, or a statute
administered by, a federal, state, or local governmental agency.” Colo. Rev. Code § 6-1-106(1)(a).
The Supreme Court of Colorado has ruled that, “given the broad remedial purpose of the CCPA,” the
safe harbor “exempts only those actions that are ‘in compliance’ with other laws” and that
“[c]onduct amounting to deceptive or unfair trade practices, however, would not appear to be in
‘compliance’ with other laws.” Showpiece Homes Corp. v. Assurance Co. of America, 38 P.3d at
56. That ruling suggests that unfair or deceptive conduct never meets the safe harbor exception.
Even if, however, the safe harbor is not so narrow, the reasoning applicable to the California safe
harbor applies here, too. As the Supreme Court of Colorado explained
the purpose of the exemption is to insure that a business is not subjected to a lawsuit
under the Act when it does something required by law, or does something that would
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otherwise be a violation of the Act, but which is allowed under other statutes or
regulations. It is intended to avoid conflict between laws, not to exclude form the
Act’s coverage that is regulated by another statute or agency.
Showpiece Homes Corp. v. Assurance Co. of America, 38 P.3d at 56. Compliance with a Consent
Order, which represents that a federal agency has agreed not to enforce a statute, does not
demonstrate that conduct is allowed under the Act -- it demonstrates only that which it represents,
namely, that, subject to certain conditions, the agency will not enforce the statute.
2.
Florida Law Does Not Bar Relief.
FDUTPA does not apply to “[a]n act or practice required or specifically permitted by federal
or state law.” Fla Stat. § 501.212(1). The Supreme Court of Florida has not interpreted the Safe
Harbor’s bounds. The Court concludes that, if confronted with the issue, the Supreme Court of
Florida would rule that an agreement not to enforce does not amount to “specifically permit[ing]”
conduct. Fla Stat. § 501.212(1). The Defendants direct the Court to two federal cases and a state
case for the opposite conclusion, but those cases are inapposite, because they deal with an express
authorization and not an agreement not to enforce. See MTD at 33 (citing Pye v. Fifth Generation
Inc., No. 14-0493, 2015 WL 5634600, at *4 (N.D. Fla. September 23, 2015)(Hinkle, J.); Prohias v.
Pfizer, Inc., 490 F. Supp. 2d 1228, 1234 (S.D. Fla. 2007)(Jordan, J.); Prohias v. AstaZeneca Pharm.,
L.P., 958 So.2d 1054, 1056 (Fla. Dist. Ct. App. 2007)).
3.
Massachusetts Law Does Not Bar Relief.
Mass. Gen. Laws. Ch. 93A has a safe harbor, which reads: “Nothing in this Chapter shall
apply to transactions or actions otherwise permitted under laws as administered by any regulatory
board or officer acting under statutory authority of the commonwealth of the United States.” Mass.
Gen. Laws. Ch. 93A, § 3. In a factually similar case, the Supreme Judicial Court of Massachusetts
determined that an FTC consent order only enjoined conduct and, therefore, “the defendants point to
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nothing approaching a showing that the FTC affirmatively permitted the use of descriptors.”
Aspinall II, 902 N.E.2d at 425.
The Court concludes that the Supreme Judicial Court of
Massachusetts would rule similarly here.
4.
Michigan Law Does Not Bar Relief.
The MCPA does not apply to “transaction[s] or conduct specifically authorized under laws
administered by a regulatory board or officer acting under statutory authority of this state or the
United States.” Mich. Comp. Laws § 445.904(1)(a). The Supreme Court of Michigan has not given
clear guidance on the safe harbor except that a court’s focus should be directed at whether “the
transaction at issue, not the alleged misconduct, is ‘specifically authorized.’” Smith v. Globe Life
Ins. Co., 597 N.W.2d at 37. Accordingly, the Court cannot properly focus on whether the purported
deception was authorized, but instead must properly focus on whether the labeling and advertising
was specifically authorized. With that only guidance in mind, the Court concludes that, if
confronted with the issue, the Supreme Court of Michigan would rule that an agreement not to
enforce does not amount to “specifically authoriz[ing]” conduct.
Mich. Comp. Laws
§ 445.904(1)(a). The federal case that the Defendants cite is unpersuasive, because its conclusion
rests on the “FTC’s regulatory scheme impliedly authoriz[ing]” the descriptors a cigarette company
used. Flanagan v. Altria Group, Inc., No.05-71697, 2005 WL 2769010, at *6 (E.D. Mich. October
25, 2005)(Edmunds, J.). The statute does not contemplate implicit authorization, only specific
authorization. See Mich. Comp. Laws § 445.904(1)(a). Moreover, even if the statute encompassed
implicit authorization, the Court concludes that the Supreme Court of Michigan would not read its
safe harbor so expansively to exclude MCPA claims merely because the federal government had
regulated in the area.55
55
The Court also notes that the Supreme Court, in Altria II, rejected the reasoning used in
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5.
New Jersey Law Does Not Bar Relief.
The NJCFA is subject to a judicially created exception. See Lemelledo, 696 A.2d at 554.
There is a “presumption that the CFA applies to covered practices, even in the face of other existing
sources of regulation.” Lemelledo, 696 A.2d at 554. “In order to overcome the presumption that the
CFA applies to a covered activity, a court must be satisfied . . . that a direct and unavoidable conflict
exists between application of the CFA and application of the other regulatory scheme or schemes.”
Lemelledo, 696 A.2d at 554. “We stress that the conflict must be patent and sharp, and must not
simply constitute a mere possibility of incompatibility.” 696 A.2d at 554. “If the hurdle for
rebutting the basic assumption of applicability of the CFA to covered conduct is too easily
overcome, the statute’s remedial measures may be rendered impotent as primary weapons in
combatting clear forms of fraud simply because those fraudulent practices happen also to be covered
by some other statute or regulation.” Lemelledo, 696 A.2d at 554. Given this precedent, the Court
concludes that an agreement not to enforce does not conflict with the New Jersey CFA so “patent[ly]
and sharp[ly]” as to bar liability. Lemelledo, 696 A.2d at 554.
6.
New Mexico Law Does Not Bar Relief.
The NMUPA shields “actions or transactions expressly permitted under laws administered by
a regulatory body of New Mexico or the United States.” N.M. Stat. Ann. § 57-12-7. In interpreting
that provision, the Supreme Court of New Mexico has held that “expressly” means “directly and
distinctly stated or expressed rather than implied or left to inference.” Truong v. Allstate Ins. Co.,
2010-NMSC-009, ¶ 38, 227 P.3d at 83 (emphasis in original)(citation omitted). In Truong v.
Allstate Ins. Co., the Supreme Court of New Mexico concluded that the Superintendent of Insurance
did not “expressly permit” a form of claims handling where the Superintendent of Insurance stated
Flanagan v. Altria Grp., Inc., albeit in its preemption analysis and not in a MCPA analysis.
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“only that the claims appear to have been handled properly and that no claims handling abuses were
noted,” and that these statements were not the same as “an affirmative finding of proper handling.”
2010-NMSC-009, ¶ 39, 227 P.3d at 83. Given that precedent, the Court concludes that the Supreme
Court of New Mexico would rule that an agreement not to enforce does not amount to express
permission, because it requires an inference.
The New Mexico False Advertising Law notes that “it shall be a complete defense that the
advertisement is subject to and complies with the rules and regulations of, and the statutes
administered by the federal trade commission.” N.M. Stat. Ann. § 57-15-4. The Supreme Court of
New Mexico has not construed this exception, nor has any other court. The Court concludes,
however, that the Supreme Court of New Mexico would rule that the safe harbor does not apply
where the rule or regulation is only an agreement not to enforce.
7.
New York Law Does Not Bar Relief.
N.Y. Gen. Bus. Law § 349(d) and N.Y. Gen. Bus. Law § 350-d preclude suit for conduct that
“is subject to and complies with the rules and regulations of, and the statutes administered by the
federal trade commission.” N.Y. Gen. Bus. Law § 349(d); N.Y. Gen. Bus. Law § 350-d (quoted
language in both). The Court of Appeals of New York has not interpreted either of those statutes nor
could the Court locate New York Supreme Court, Appellate Division cases interpreting the safe
harbors. Several New York federal courts, however, have reasoned that the safe harbors cover “rules
and regulations,” which does not include informal agency action. See, e.g., Greene v. Gerber
Products Co., __F. Supp. 3d__, 2017 WL 3327583, at *21-22 (E.D.N.Y. 2017)(Brodie, J.). At least
one other New York federal court has concluded that the safe harbor analysis overlaps with a
constitutional preemption analysis. See Stewart v. Riviana Foods, Inc., No.16-6157, 2017 WL
4045952, at *4-5 (S.D.N.Y. September 11, 2017)(Roman, J.). The Court concludes that, if
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confronted with the issue, the Court of Appeals of New York would adopt the reasoning of those
federal courts and rule that the Consent Order is not a rule or regulation, or that an agreement not to
enforce a federal statute does not meet the conduct required for the safe harbor.
8.
North Carolina Law Does Not Bar Relief.
In Ellis v. Northern Star Co., the Supreme Court of North Carolina recognized that, “[i]n
limitation, we have held that certain transactions already subject to pervasive and intricate statutory
regulation, such as securities transactions, were not intended by the legislature to be included within
the scope of [N.C. Gen. Stat. § 75-1.1].” Ellis v. Northern Star Co., 388 S.E.2d at 131. Although the
cigarette industry has been subject to regulation, the Court declines to extend this limited exception
to an industry that, to the Court’s knowledge, no North Carolina court has exempted from the statute.
Moreover, the Court concludes it is unlikely that the Supreme Court of North Carolina would extend
the doctrine in a context that the Supreme Court has rejected in the preemption field.
9.
Ohio Law Does Not Bar Relief.
Ohio Rev. Code Ann. § 1345.02(A) is inapplicable if “a violation was an act or practice
required or specifically permitted by federal trade commission orders.”
Ohio Rev. Code
Ann. § 1345.11. In Marrone v. Philip Morris USA, Inc., the Supreme Court of Ohio noted that the
“Ohio’s consumer-protection laws defer to FTC pronouncements,” but it concluded that, “although
the FTC is well aware of the years of litigation and debate over cigarette manufactures’ marketing
strategies, . . . it appears that the FTC has neither permitted nor forbidden characterizations like
‘low’ tar.”
Marrone v. Philip Morris USA, Inc., 850 N.E.2d at 38. With that conclusion it
implicitly recognized that an FTC consent order enjoining descriptor use, unless disclosures
accompany the descriptors, does not permit descriptor use. Marrone v. Philip Morris USA, Inc., 850
N.E.2d at 38 (citing Flanagan v. Altria Group, Inc., 2005 WL 2769010, at *3-5). The Court is
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concludes that, although the holding is dicta, the Supreme Court of Ohio would follow its conclusion
from Marrone v. Philip Morris USA, Inc. and rule that the Consent Order does not permit the
descriptor use here.
10.
Washington Law Does Not Bar Relief.
The WCPA does not apply “to actions or transactions otherwise permitted, prohibited or
regulated under laws administered by . . . any other regulatory body or officer acting under statutory
authority of this state or the United States.” Wash. Rev. Code § 19.86.170. The Supreme Court of
Washington has stated that “[e]xemption under the Consumer Protection Act is applied only after
determining whether the specific action is permitted, prohibited, regulated or required by a
regulatory body or statute.” Vogt v. Seattle-First Nat. Bank, 817 P.2d 1364, 1370 (Wash. 1991)(en
banc). It has also noted that an “[o]verly broad construction of ‘permission’ may conflict with the
legislature’s intent that the Consumer Protection Act be liberally construed so that its beneficial
purposes may be served.” Vogt v. Seattle-First Nat. Bank, 817 P.2d at 1370. “The test articulated
was whether under the circumstances of a particular case, state law stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.” Vogt v. SeattleFirst Nat. Bank, 817 P.2d at 1371. Based on that precedent, the Court concludes that the Supreme
Court of Washington would rule that an agreement not to enforce does not amount to permission
under the safe harbor nor does the state statute stand as an obstacle to the FTC’s purpose.
C.
ILLINOIS SAFE HARBORS BAR RELIEF FOR CONDUCT THE CONSENT
ORDER SPECIFIES.
Although the Court concludes broadly that the Consent Order does not establish a safe harbor
for the Defendants’ conduct under other States’ law, the Supreme Court of Illinois dictates a
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different outcome.56 Under Illinois law, the IFCA does not apply to “[a]ctions or transactions
specifically authorized by laws administered by any regulatory body or officer acting under statutory
authority of this State or the United States.” 815 Ill. Comp. Stat. 505/10b(1). Also under Illinois
law, the IUDTPA does not apply to “conduct in compliance with orders or rules of or a statute
administered by a Federal, state or local governmental agency.” 815 Ill. Comp. Stat. 510/4(1). In
Price v. Philip Morris, the Supreme Court of Illinois concluded that an FTC consent order enjoining
the use “low,” “lower,” “reduced,” and other similar words “so long as the descriptive terms are
accompanied by a clear and conspicuous disclosure of the ‘tar’ and nicotine content” barred a
plaintiff’s claim under 815 Ill. Comp. Stat. 505/10b(1) and under 815 Ill. Comp. Stat. 510/4(1) -- the
two safe harbors. Price v. Philip Morris, 848 N.E.2d at 50, 53. The Court concludes that Price v.
Philip Morris controls the Illinois’ claims outcome. The Consent Order, however, governs only
Natural American cigarette’s advertising and not its labeling. Accordingly, the Court dismisses the
Plaintiffs’ Illinois claims to the extent that they are premised on the theory that the terms “natural”
and “additive-free” in the Defendants’ advertising mislead a reasonable consumer into believing that
Natural American cigarettes are safer or healthier than other cigarettes .
D.
THE COURT DISMISSES IN PART THE IUDTPA CLAIM AND THE OHIO
STATUTORY CLAIMS FOR INDEPENDENT STATE REASONS.
The Defendants argue that the Plaintiffs’ IUDTPA, TCCWNA, OCSPA, and ODTPA claims
fail for independent state reasons. The Court concludes that the Plaintiffs have adequately pled their
TCCWNA claim, but that the other three claims fail. The Court considers each claim in turn.
56
The Court disagrees with that court’s conclusions for the reasons articulated in its analysis
under California law, but is nevertheless bound by the Supreme Court of Illinois.
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1.
The IUDTPA Claim for Injunctive Relief Fails, Because the Plaintiffs
Will Not Suffer a Future Harm From the Deception at Issue.
The Defendants argue that the Plaintiffs’ claim for injunctive relief under IUDTPA fails,
because the Plaintiffs cannot allege likelihood of future harm to themselves. See MTD at 49-50.
According to the Defendants, now that the Plaintiffs know of the deception, the Defendants’ sales
and marketing practices cannot ever harm them again. See MTD at 50. In so arguing, the
Defendants rely on several cases, including a Seventh Circuit decision, which ruled that, under
IUDTPA, “[s]ince [the plaintiff] is now aware of [the defendant’s deceptive] sales practices, he is
not likely be harmed by the practices in the future,” and, therefore, the plaintiff “is not entitled to
injunctive relief.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 740-41 (7th Cir. 2014).
See MTD at 49-50 (citing Aliano v. Louisville Distilling Co., LLC, 115 F. Supp. 3d 921, 928 (N.D.
Ill. 2015)(Aspen, J.); Robinson v. Toyota Motor Credit Corp., 735 N.E.2d 724, 735 (Ill. App. Ct.
2000)); Reply at 24-25.
IUDTPA provides that “[a] person likely to be damaged by a deceptive trade practice of
another may be granted injunctive relief upon terms that the court considers reasonable.” 815 Ill.
Comp. Stat. 510/3. The Supreme Court of Illinois has agreed with the Defendants’ reasoning and
has ruled that plaintiff consumers who know of the purported deception “can avoid it,” and, thus,
“are not persons who are likely to be damaged by the defendants’ conduct in the future.” Glazewksi
v. Coronet Ins. Co., 483 N.E.2d 1263, 1267 (Ill. 1985)(quotations omitted)(concluding that the
“plaintiffs are not eligible for injunctive relief”). See Brooks v. Midas-International Corp., 361
N.E.2d 815, 821 (Ill. App. Ct. 1977)(“Whatever harm plaintiff may suffer from the advertisements
has already occurred. The trial court, therefore was correct in ruling that such practices by defendant
are not likely to damage plaintiff.”); Kljajich v. Whirlpool Corp., No. 15-5980, 2015 WL 8481973,
at *4-5 (N.D. Ill. December 10, 2015)(Eve, J.).
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The Plaintiffs counter that, although the class representatives know of the deception, putative
class members can still be deceived, so they still have standing to sue. See Response at 55 (citing
Leiner v. Johnson & Johnson Consumer Cos., No. 15-5876, 2016 WL 128098, at *1 (N.D. Ill.
January 12, 2016)). The Court concludes that the Supreme Court of Illinois would not agree with the
Plaintiffs. Although not expressly considering the argument, in Glazewki v. Coronet Ins. Co., the
Supreme Court of Illinois considered class-action representatives’ suit for injunctive relief and
determined that, because the representative plaintiffs knew of the deception, injunctive relief was
foreclosed. See Glazewki v. Coronet Ins. Co., 483 N.E.2d at 1267. Leiner v. Johnson & Johnson
Consumer Cos. does not bind the Court, and, even if it bound the Court, the case is inapposite,
because it pivots on Article III standing requirements to bring a suit for injunctive relief under
IUDTPA. See Leiner v. Johnson & Johnson Consumer Cos., 2016 WL 128098, at *1. In contrast,
the Defendants here argue that the Plaintiffs have not sufficiently pled one of IUDTPA’s elements,
i.e., likelihood of future harm.57 Accordingly, the Court dismisses the IUDTPA claim, Illinois Count
II, for injunctive relief.
2.
The Plaintiffs Have Adequately Pled their TCCWNA Claim, Because
They Have Plausibly Alleged a Predicate Violation Under the NJCFA.
The Defendants argue that the Plaintiffs’ TCCWNA claim fails, because they have not
alleged a predicate statutory violation. See MTD at 50. They contend that the only predicate
57
The Court notes the Plaintiffs’ argument that Illinois’ courts’ interpretations gut the statute,
because a plaintiff suing under IUDTPA will always know of the deception by the time he brings
suit, so will never qualify for injunctive relief. That conclusion is false, because some deceptive
conduct leads to repeated, hard-to-verify harms, such as deceptive billing practices. See Brennan v.
AT&T Corp., No.04-0433, 2006 WL 306755, at *5 (S.D. Ill. February 8, 2006)(Herndon, J.). As
that court reasoned, although a consumer might recognize incorrect charges once, it is not
guaranteed that the consumer will recognize incorrect charges in the future. See Brennan v. AT&T
Corp., 2006 WL 306755, at *5 (“Although it is true that Crawford recognized the Defendant’s
charges in the past, she may not be so fortunate in the future -- particularly when a charge may
appear as nothing more than one line in a lengthy phone bill from another provider.”).
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possible is the Plaintiffs’ NJCFA claim and, because the Plaintiffs fail to demonstrate that the
Defendants’ representations would deceive a reasonable consumer, that predicate claim fails. See
MTD at 51. The Court concludes, however, that the Plaintiffs have plausibly alleged a NJCFA
violation, see supra 163-77, so the Plaintiffs TCCWNA may proceed.
3.
The Plaintiffs have not Pled OSCPA’s Substantive Notice Requirement,
so the Court Dismisses the OSCPA Claim.
Under the OSCPA, a consumer qualifies for class-action relief only when a supplier acts in
the face of prior notice that its conduct was deceptive. See Marrone v. Philip Morris USA, Inc., 850
N.E.2d at 34, 38 (citing Ohio Rev. Code Ann. § 1345.09(B)). “The prior notice may be in the form
of (1) a rule adopted by the Attorney General . . . or (2) a court decision made available for public
inspection by the Attorney General.” Marrone v. Philip Morris USA, Inc., 850 N.E.2d at 34. For a
court decision to qualify as Notice, the prior court decision must be substantially similar to the cause
of action brought. See Marrone v. Philip Morris USA, Inc., 850 N.E. at 36, 38 (“Cases that involve
industries and conduct very different from the defendant’s do not provide meaningful notice of
specific acts or practices that violate the CSPA.”). The requisite notice must be in the plaintiffs’
complaint. See Volbers-Klarich v. Middletown Mgt., Inc., 929 N.E.2d 434, 502 (Ohio 2010); In re
Porsche Cars N. Am., Inc., 880 F. Supp. 2d 801, 868 (S.D. Ohio 2012)(Frost, J.); Johnson v.
Microsoft Corp., 802 N.E. 2d 712, 720 (Ohio Ct. App. 2003) aff’d, 834 N.E. 2d 791 (Ohio 2005).
Here, the Plaintiffs have not pled a specific court decision or Attorney General adopted rule
to put the Defendants on notice. See Amended Complaint ¶¶ 395-411, at 95-98. The Plaintiffs
contend, however, that such notice requirement is inapplicable here, because the requirement is
procedural, so “ha[s] no effect in federal court.” Response at 59 (citing Erie R.R. v. Tompkins, 304
U.S. 64 (1938)). According to Plaintiffs, because the pre-suit notice requirement is procedural and
conflicts with rule 23, rule 23 must prevail. Response at 59-60.
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“In diversity cases, the Erie doctrine instructs that federal courts must apply state substantive
law and federal procedural law.” Racher, 871 F.3d at 1162. “If a federal rule of civil procedure
answers the question in dispute, that rule governs our decision so long as it does not ‘exceed[]
statutory authorization or Congress’s rulemaking power.’” Racher, 871 F.3d at 1162 (quoting Shady
Grove, 559 U.S. at 398). “When faced with a choice between a state law and an allegedly
conflicting federal rule,” the Tenth Circuit “follow[s] the framework described by the Supreme
Court in Shady Grove, as laid out by Justice Stevens in his concurring opinion.” Racher, 871 F.3d at
1162. “First, the court must decide whether the scope of the federal rule is sufficiently broad to
control the issue before the court, thereby leaving no room for the operation of seemingly conflicting
state law.” Racher, 871 F.3d at 1162 (citations and quotations omitted). There is a conflict between
federal and state law if there is a “direct collision” that is “unavoidable,” but there is no collision if
the state and federal rules “can exist side by side . . . each controlling its own sphere of coverage.”
Racher, 871 F.3d at 1163 (citations omitted). If there is no direct collision, “there is no need to
consider whether the federal rule is valid, and instead, the analysis must proceed under Erie.”
Racher, 871 F.3d at 1163. If there is a direct collision, a court must follow the federal rule if it is a
valid exercise of the Supreme Court’s authority pursuant to the Rules Enabling Act, i.e., it must “not
abridge, enlarge or modify a substantive right.” 28 U.S.C. § 2072(b). See Racher, 871 F.3d at 116364. A state law is substantive if after examining “the language and policy of the rule in question . . .
the primary objective is directed to influencing conduct through legal incentives,” and a state law is
procedural if the law’s purpose is to “achiev[e] fair, accurate, and efficient resolutions of disputes.”
Sims v. Great American Life Ins. Co., 469 F.3d 870, 883 (10th Cir. 2006). See Leon v. FedEx
Ground Package Sys., Inc., 313 F.R.D. 615, 641 (D.N.M. 2016)(Browning, J.). The Tenth Circuit
recently added: “If a state law ‘concerns merely the manner and means’ by which substantive rights
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are enforced, it is procedural, but if its application would ‘significantly affect the result of litigation,
it is substantive.’” Racher, 871 F.3d at 1164 (quoting Guaranty Trust Co. v. York, 326 U.S. 99, 109
(1945)).
Rule 23 does not directly conflict with the Ohio class-action pre-suit notice requirement.
Rule 23 governs when a federal court may certify a class action. Fed. R. Civ. P. 23. Rule 23,
however, does not purport to create a class action’s only requisite procedural elements. Rule 23(b)’s
language is framed permissively: “A class action may be maintained . . . .” Fed. R. Civ. P. 23(b)
(emphasis added). Accordingly, both the federal conditions and the state condition can be met, so
rule 23 and Ohio’s pre-suit notice law may exist “side by side.” Racher, 871 F.3d at 1163 (citations
omitted).58
Because there is no direct conflict, the Court proceeds under Erie. See Racher, 871
F.3d at 1163.
Under Erie, “federal courts sitting in diversity apply state substantive law and federal
procedural law.” Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996). Ohio federal
courts construing Ohio’s Consumer Sales Practice Act’s notice requirement have determined that the
rule is substantive, because it “is intimately interwoven with the substantive remedies available
under the OSCPA.” In re Whirlpool, 2010 WL 2756947 at *2 (citing Shady Grove, 559 U.S. at 429
(Stevens, J., concurring). See McKinney v. Bayer Corp., 744 F. Supp. 2d at 748-49; Phillips v.
Philip Morris Cos., 290 F.R.D. 476, 480-81 (N.D. Ohio 2013)(Lioi, J.). The In re Whirlpool court
58
The Court notes that some Ohio federal courts have concluded that Ohio’s class-action presuit notice requirement directly conflicts with rule 23. See e.g., McKinney v. Bayer Corp., 744
F. Supp. 733, 748 (N.D. Ohio 2010)(O’Malley, J.); In re Whirlpool Corp. Front-Loading Washer
Products Liability Litig., No. 08-65000, 2010 WL 2756947, at *1 (N.D. Ohio July 12,
2010)(Gwin, J.)(“In re Whirlpool”) judgment vacated on other grounds, 559 U.S. 901 (2013). The
Court disagrees with their conclusions, because they interpret the rule’s language that “[a] class
action may be maintained” to suggest that rule 23 prescribes the exclusive requirements for class
actions. Fed. R. Civ. P. 23(b). See In re Whirlpool, 2010 WL 2756947 at *1. “May” is a
permissive term. It expresses both discretion and uncertainty. An action may proceed, but it does
not mean that it must proceed.
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explained that Ohio Rev. Code § 1345.09 “purports to define substantive rights and remedies by
creating a cause of action for defrauded consumers,” and the pre-suit notice requirement “applies
only to ‘a violation of Chapter 1345 of the [Ohio] Revised Code’ -- indicating its substantive
nature.” In re Whirlpool, 2010 WL 2756947 at *2 (quoting Ohio Rev. Code § 1345.09). The notice
rule, thus, is much more like an element to the claim and not a procedural requirement. See In re
Whirlpool, 2010 WL 2756947 at *2. The Court agrees that Ohio’s pre-suit notice requirement is
substantive. First, because the requirement applies only to Ohio’s Consumer Sales Practice Act, it
acts more like a claim’s element than a procedural hurdle. See Phillips v. Philip Morris Cos., 290
F.R.D. at 481. Second, pre-suit notice’s purpose is typically to convince parties to negotiate before
litigation, and “thus the primary objective is directed to influencing conduct through legal
incentives.” Sims v. Great American Life Ins. Co., 469 F.3d at 883. See Baber v. Edman, 719 F.2d
122, 123 (5th Cir. 1983)(concluding that a pre-suit notice requirement’s purpose is to give parties an
“opportunity to settle in advance of expensive litigation”). Finally, the rule, much like a statute of
limitations, even though seemingly procedural, “significantly affect[s] the result of litigation,”
because failure to plead notice defeats the claim. Racher, 871 F.3d at 1164 (quoting Guaranty Trust
Co. v. York, 326 U.S. at 109). Accordingly, the pre-suit notice requirement is substantive, and the
Court must apply it. The Plaintiffs have not pled the pre-suit notice requirement, so the Court
dismisses the Plaintiffs’ OCSPA claim without prejudice with leave to plead, as required, the notice
needed.
4.
The Plaintiffs’ ODTPA Claim Fails, Because Consumers Do Not Have
Standing to Sue Under That Statute.
The Defendants argue that the ODTPA claim fails, because many Ohio Courts have
concluded that the statute does not grant consumers standing to sue. See MTD at 52. The Plaintiffs
counter that, notwithstanding the cases to the contrary, the statute’s express language “affirmatively
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grants the plaintiffs standing” as other federal courts have recognized. Response at 61. The statute
provides that: “A person who is injured by a person who commits a deceptive trade practice . . . may
commence a civil action.” Ohio Rev. Code Ann. § 4165.03(A)(2). “Person means an individual,
corporation, government . . . . or any other legal or commercial entity.” Ohio Rev. Code Ann.
§ 4165.01(D). The Supreme Court of Ohio has not yet resolved the consumer standing issue, and
there is a recognized split in authority on the topic, although the split lopsidedly favors the
Defendants. See Terlesky v. Fifth Dimension Inc., 2015 WL 7254189, at *2 (S.D. Ohio November
17, 2015)(Dlott, J.); Phillips v. Philip Morris Cos., 290 F.R.D. at 482 (collecting cases). Many
courts that reason a consumer has no standing to sue, despite the statute defining “person” as an
“individual,” conclude that the Ohio statute “is substantially similar to Section 43(a) of the Lanham
Act and the Lanham Act protects the interests of a purely commercial class that does not include
individual consumers.” Terlesky v. Fifth Dimension Inc., 2015 WL 7254189, at *2. See, e.g., In re
Porsche Cars N. Am., Inc., 880 F. Supp. 2d 801, 874 (S.D. Ohio 2012)(Frost, J.); Dawson v.
Blockbuster, Inc., 2006 WL 1061769, at *4 (Ohio App. Ct. March 16, 2006), cert. denied, 852
N.E.2d 190 (Ohio 2006). Other courts, looking to the statute’s language have concluded that the
“any other legal or commercial entity” language in Ohio Rev. Code Ann. § 4165.01(D) qualifies the
definition of individual such that it commands that the individual must be involved in commercial
activity. See e.g., Phillips v. Philip Morris Cos., 290 F.R.D. at 483; Robins v. Global Fitness
Holdings, LLC, 838 F. Supp. 2d 631, 650 (N.D. Ohio 2012)(Polster, J.). The Court concludes that
Supreme Court of Ohio would adopt the majority position, because it “often look[s] to federal court
interpretation of federal statutes analogous to Ohio Statutes,” Williams v. Akron, 837 N.E.2d 1169,
1176 (Ohio 2005), and the Lanham Act, which is analogous to ODTPA, has been interpreted to bar
consumer standing, see Phillips v. Philip Morris Cos., 290 F.R.D. at 483-84. The Court also
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concludes that the minority position is incorrect, because it renders the OCSPA superfluous “as both
statutes [would] regulate the same type of conduct.” Robins v. Global Fitness Holdings, LLC, 838
F. Supp. 2d 631, 650 (N.D. Ohio 2012). In so ruling, the Court is mindful that, when sitting in
diversity, a federal district judge should strive to ensure that a forum’s location should not dictate a
claim’s outcome. See Butt v. Bank of Am., N.A., 477 F.3d at 1179. Given the majority position, if
this case had been brought in Ohio, it is highly likely that the claim would be dismissed for lack of
standing. The Court, accordingly dismisses the ODTPA claim.
VII.
THE PLAINTIFFS’ NEW JERSEY AND OHIO UNJUST-ENRICHMENT CLAIMS
FAIL, BECAUSE THE PLAINTIFFS CANNOT PLEAD A REMUNERATION FOR
THE NEW JERSEY CLAIM AND THEY CANNOT PLEAD A DIRECT BENEFIT
FOR THE OHIO CLAIM.
The Defendants argue that the some or all of the Plaintiffs unjust-enrichment claims fail for
four reasons. First, the Defendants argue that all of the unjust-enrichment claims fail, because the
plaintiffs have not pled an injustice -- there was no deception. See MTD at 52. Second, they assert
that nine of twelve unjust-enrichment claims fail, because the Plaintiffs have an adequate legal
remedy. See MTD at 53. Third, they contend that four of twelve fail, because the Plaintiffs did not
directly confer a benefit to the Defendants. See MTD at 53. Finally, they conclude that two of
twelve claims fail for state-specific reasons. See MTD at 53. The Court determines that the
Plaintiffs have pled an injustice, and that unjust enrichment may be pled in the alternative under rule
8. The New Jersey and Ohio claims fail, however, for state specific reasons.
A.
THE PLAINTIFFS HAVE PLED AN INJUSTICE, BECAUSE THERE ARE
TWO PLAUSIBLE THEORIES OF DECEPTION.
The Defendants argue that the Plaintiffs have failed to plausibly allege a deception, so the
Plaintiffs’ unjust-enrichment claims fail, because there has been no injustice. See MTD at 54-55.
The Court concludes, however, that there are two plausible theories of deception. See supra at 163-
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77. Accordingly, the Defendants’ argument fails as to the Safer-Cigarette and Menthol Theories.
The Court dismisses the Plaintiffs’ unjust-enrichment claims to the extent that they rely on the
Unprocessed-Cigarette Theory.
B.
THE PLAINTIFFS UNJUST-ENRICHMENT CLAIMS MAY BE PLED IN
THE ALTERNATIVE EVEN THOUGH AN ADEQUATE LEGAL REMEDY
MAY EXIST UNDER THE STATUTORY SCHEME.
The Defendants argue that, under Colorado, Florida, Massachusetts, Michigan, New Jersey,
New York, North Carolina, Ohio, and Washington law, the Plaintiffs’ unjust-enrichment claims fail,
because the Plaintiffs’ have an adequate and available legal remedy.59 See MTD at 55-60.60 The
Plaintiffs counter that, under rule 8(d) of the Federal Rules of Civil Procedure, they may plead in the
alternative their equitable claims. See Response at 63. They also argue that, for state-specific
reasons, their unjust-enrichment claims do not fail. See Response at 64-69.
There is no binding Tenth Circuit precedent construing pleading in the alternative equitable
claims under the Federal Rules of Civil Procedure, so the Court writes on a clean slate. Rule 8(d)(2)
provides that: “A party may set out 2 or more statements of a claim or defense alternatively or
hypothetically, either in a single count or defense or in separate ones. If a party makes alternative
statements, the pleading is sufficient if any one of them is sufficient.” Fed. R. Civ. P. 8(d)(2). Rule
8(d)(3) states: “A party may state as many separate claims or defenses as it has, regardless of
consistency.” Fed. R. Civ. P. 8(d)(3). Some United States District Courts have concluded that
59
The Court recognizes that Plaintiffs pursuing unjust enrichment may also seek a legal
remedy, which would obviate the available legal remedy argument. See Restatement (Third) of
Restitution and Unjust Enrichment. The Plaintiffs, however, seek an equitable remedy with their
unjust-enrichment claims. See Amended Complaint ¶¶ 175, 193, 215, 248, 265, 288, 314, 341, 373,
394, 426, 449, at 54, 57, 62, 68, 71, 76, 81, 86, 91, 95, 99-100, 103.
60
In their MTD, the Defendants argue that the New Mexico unjust-enrichment claim failed
for the same reason, see MTD at 58, but in their Reply, they withdrew argument on that ground, see
Reply at 27 n.17.
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equitable claims premised on the same factual deception as a consumer protection claims are not,
under rule 8, alternative theories of relief. See In re Ford Tailgate Litig., No. 11-2953, 2014
WL 1007066, at *5 (N.D. Cal. March 12, 2014)(Seeborg, J.)(“[W]here the unjust enrichment claim
relies upon the same factual predicates as a plaintiff’s legal causes of action, it is not a true
alternative theory of relief, but rather is duplicative of those causes of action.”)(quoting Licul v.
Volkswagen Grp. of Am., Inc., No. 13-61686, 2013 WL 6328734, at *7 (S.D. Fla. December 5,
2013)(Cohn, J.)). The Court disagrees with the conclusion that an unjust-enrichment claim cannot
be an alternative theory, under federal law, if it is premised on the same factual predicates. Cf.
Sylvia v. Wisler, __ F.3d __, 2017 WL 5622916, at *10 (10th Cir. 2017)(“[T]he same relationship
between a client and her attorney may conceivably provide the basis for claims sounding in both
contract and tort. . . . [T]here is nothing in the federal rules or in Kansas practice that prevented
Mr. Sylvia from pleading in the alternative claims sounding in both tort and contract.”); Abraham v.
WPX Energy Production, LLC, 20 F. Supp. 3d 1244, 1273 (D.N.M. 2014)(Browning, J.)(rejecting a
proposed rule that an unjust-enrichment claim must be dismissed under New Mexico law “when the
claim involves the issues that are the subject of a contract”).
For example, in the consumer
protection or tort context, though the purported deception might be the same, the damages theory
diverges. Unjust enrichment focuses on the Defendants’ ill-gotten gains, whereas a tort theory
focuses on the Plaintiffs’ loss. See In re Light Cigarettes Marketing Sales Practices Litig., 751
F. Supp. 2d at 192 n.11; Harris Grp., Inc. v. Robinson, 209 P.3d at 1205. The Court concludes that
such a divergence is enough to amount to an alternative theory under rule 8(d). The Court, thus,
declines to hold that rule 8(d) necessarily forecloses pleading an equitable claim in the alternative,
because factual predicates overlap.
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Nevertheless, the Court must consider whether rule 8(d) allows plaintiffs to plead equitable
theories in the alternative regardless whether state law precludes such a pleading. Many United
States District Courts have held that rule 8 governs, unless state law provides an exclusive remedy.
See, e.g., In re Light Cigarettes Marketing Sales Practices Litigation, 751 F. Supp. 2d 183, 192 (D.
Me. 2010)(Woodcock, J.)(noting that, under rule 8(d)(2), pleading in the alternative fails “when the
legal cause of action provides an exclusive remedy” and collecting cases); Maalouf v. Salomon
Smith Barney, Inc., No. 02-4770, 2003 WL 1858153, at *7 (S.D.N.Y. April 10,
2003)(Scheindlin, J.). Thus, when a contract arguably covers the equitable claim’s scope, i.e., a
plaintiff sues for breach of contract and unjust enrichment based on the same factual predicates,
many court have held that equitable claims may be pled in the alternative only if it is reasonably
likely that the party will challenge the contract’s validity. See Solo v. United Parcel Serv. Co., 819
F.3d 788, 796 (6th Cir. 2016); Maalouf v. Salomon Smith Barney, Inc., 2003 WL 1858153, at *7;
Herazo v. Whole Foods Market, Inc., No. 14-61909, 2015 WL 4514510, at *3 (S.D. Fla. July 24,
2015)(Moreno, J.).
With that backdrop in mind, the Court concludes that, under Shady Grove, the court must
apply rule 8(d). Rule 8(d) allows expansive alternative pleading and state law prohibits alternative
pleading of equitable claims if there is an adequate remedy at law, so the two are in conflict. See,
e.g., Szaloczi v. John R. Behrmann Revocable Trust, 90 P.3d 835, 842 (Colo. 2004)(“[E]quity will
not act if there is a plain, speedy, adequate remedy at law.”); Greenfield Villages v. Thompson, 44
So.2d 679, 683 (Fla. 1950); Tkachik v. Mandeville, 790 N.W.2d 260 265 (Mich. 2010); Slurzberg v.
City of Bayonne, 148 A.2d 171, 176 (N.J. 1959). The Court, thus, must determine whether the
federal rule violates the Rules Enabling Act by abridging, modifying, or enlarging a substantive
right. There are two possible interpretations of the rule that an adequate legal remedy bars equitable
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relief. First, it could mean that, as part of providing a statutory, i.e., legal, remedy, the state
legislature displaced judge-made remedies like unjust enrichment. See In re Light Cigarettes
Marketing Sales Practices Litig., 751 F. Supp. at 192. Second, it could mean that equitable relief is
unnecessary, because a legal claim exists, which makes pleading equitable relief redundant.
Regarding the first possible interpretation, if a state legislature displaces all unjust enrichment claims
rooted in consumer deception, then such claims will never survive a motion to dismiss for failure to
state a claim; rule 8 would have no bearing on the analysis. Regarding the second possible
interpretation, however, if state rules regarding the adequacy of remedies at law serve only to
eliminate duplicative pleading, then such state rules conflict with rule 8(d). Applying rule 8(d)
would grant the Plaintiffs a procedural right that would be unavailable in state court, i.e., the right to
plead legal and equitable theories in the alternative. Granting the Plaintiffs a procedural right does
not violate the Rules Enabling Act, which prohibits the Federal Rules of Civil Procedure from
abridging, enlarging, or modifying substantive rights. Allowing the Plaintiffs to plead in the
alternative does not create a new claim or permit double recovery, because, the legal claim will
either prove meritorious and the equitable claim will be dismissed, or the legal claim will fail and the
equitable claim will proceed.
The Court concludes that the state laws at issue serve only to eliminate duplicative pleading,
so rule 8 applies. Surveying the consumer protection statutes at issue, none bar common-law
equitable relief. See Colo. Rev. Stat. Ann. §§ 6-1-101-115; Fla. Stat. § 501.201-213; Mass. Gen.
Laws Ch. 93A §§ 1-11; Mich. Comp. Laws §§ 445.901-922; N.J. Stat. Ann. § 56:8-1-56:8-206; N.Y.
Gen. Bus. Law §§ 349-350-F-1; N.C. Gen. Stat. § 75-1-42; Ohio Rev. Code Ann. § 1345.01-13;
Wash Rev. Code § 19.86.010-920. Indeed, many explicitly note that the statutes do not circumscribe
the common law or other state laws. See Colo. Rev. Stat. § 6-1-105(c); Fla. Stat. § 501.213; Mich.
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Comp. Laws § 445.916; N.Y. Gen. Bus. Law § 350-e(1); Ohio Rev. Code Ann. § 1345.13. Because
none create an exclusive remedy, the adequate-legal-remedy rule must be construed as eliminating
duplicative claims, and rule 8 applies.61
Under rule 8(d), the Court will not dismiss the Plaintiffs’ equitable claims at this stage,
because rule 8(d)(3)’s plain language allows them. It reads: “A party may state as many separate
claims or defenses as it has, regardless of consistency.” Fed. R. Civ. P. 8(d)(3). Rule 8(d)(2) also
provides that claims may be pled in the alternative. See Fed. R. Civ. P. 8(d)(2). The Plaintiffs may,
therefore, plead both equitable and legal relief, although they may not, under state law, ultimately
recover under both theories. See In re Dial Complete Marketing and Sales Practices Litig., 2013 WL
1222310, at *8-9 (“[C]onsistent with Federal Rules, Plaintiffs have simply pled their claims in the
alternative . . . the mere fact that plaintiffs have pled arguable inconsistent theories is not, standing
alone, a sufficient basis to dismiss one of those claims.”); In re Light Cigarettes Marketing Sales
Practices Litig., 751 F. Supp. 2d at 192 (“At this stage, the Plaintiffs may assert multiple and
duplicative legal and equitable claims for relief.”); In re Celexa and Lexapro Marketing and Sales
Practices Litig., 751 F. Supp. 2d 277, 297 (D. Mass. 2010)(Gorton, J.)(“[I]t is inappropriate to
61
In so ruling, the Court notes its Abraham v. WPX Energy Production, LLC, 20 F. Supp.
3d 1244 (D.N.M. 2014)(Browning, J.)(“Abraham”). In that case, the Court considered whether
plaintiffs could pursue an unjust-enrichment claim when a contract covered the same subject matter.
See Abraham, 20 F. Supp. 3d at 1278. It concluded that unjust enrichment is foreclosed, under New
Mexico law, when a plaintiff can pursue a contract claim, and there is no allegation that something is
preventing the plaintiff from recovering under contract. See Abraham, 20 F. Supp. 3d at 1284. In
that case, the plaintiffs did not argue whether rule 8 applied. The Court notes some tension in that
case and this ruling, but the Court there was construing New Mexico law, and not rule 8. In
addition, the Court determined there that the unjust-enrichment claim was prudently dismissed,
because recovery on the contract claim against one party was highly likely, and preserving the equity
claim would inflict an injustice on a third party who would otherwise be dismissed from the action.
See 20 F. Supp. 3d at 1284-85. In contrast, here, the unjust enrichment is not targeting a third party,
and the Defendants will remain in the action even if the Court dismissed the unjust-enrichment
claims.
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dismiss equitable remedies at the pleading stage on this basis. Under the Federal Rules of Civil
Procedure, plaintiffs have the prerogative to plead alternative and even conflicting theories.”); In re
K-Dur Antitrust Litig., 338 F. Supp. 2d 517, 544 (D.N.J. 2004)(Greenaway, J.)(“Plaintiffs, however,
are clearly permitted to plead alternative theories of recovery. Consequently, it would be premature
at this stage of the proceedings to dismiss the . . . unjust enrichment claims on this basis.”)62
C.
IF RULE 8 DID NOT APPLY, THE FLORIDA, MASSACHUSETTS,
MICHIGAN, NEW JERSEY, NEW YORK, NORTH CAROLINA, AND
WASHINGTON CLAIMS WOULD FAIL, BECAUSE THE PLAINTIFFS
HAVE AN ADEQUATE LEGAL REMEDY, BUT THE OHIO AND
COLORADO CLAIMS WOULD NOT.
Although the Court concludes that the Plaintiffs may plead their equitable claims in the
alternative, the Court considers below whether state law would allow the unjust-enrichment claims
to be pled in the absence of rule 8. It concludes that, under the appropriate state laws, except for
Colorado’s and Ohio’s, the Plaintiffs claims would be dismissed. The Court considers each state
briefly in turn.
1.
The Colorado Unjust-Enrichment Claim Would Succeed Regardless of
Rule 8, Because the Plaintiffs Request a Remedy Unavailable Under the
Statute.
The Supreme Court of Colorado has ruled that “equity will not act if there is a plain, speedy,
adequate remedy at law.” Szaloczi v. John R. Behrmann Revocable Trust, 90 P.3d at 842. The
Defendants argue that the Plaintiffs’ Colorado unjust-enrichment claim must be dismissed, because
the CCPA, which the Plaintiffs’ invoke, amounts to a plain, speedy, and adequate remedy at law.
See MTD at 56 (citing Francis v. Mead Johnson & Co., No. 10-0701, 2010 WL 5313540, at *9
(D. Colo. December 17, 2010)(Kane, J.)(dismissing an unjust-enrichment claims “because the CCPA
62
The Court also concludes that the Defendants’ argument that the unjust-enrichment claim
must be independently dismissed in New York as duplicative fails, because of rule 8. The New York
State rule is procedural, because it deals with duplicative pleading, so rule 8 governs.
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provides an adequate legal remedy.”)). The Defendants acknowledge that an unjust-enrichment
claim may, nonetheless, proceed under Colorado law if the legal claim sounds in tort, and the
equitable and legal claims seek alternative remedies, but argue that the Plaintiffs have not
demonstrated that the equitable relief they seek diverges from the sought after legal remedy. See
Reply at 28-29 (citing L-3 Commc’ns Corp. v. Jaxon Eng’g & Maint., Inc., 125 F. Supp. 3d 1155,
1175-76 (D. Colo. 2015)(Krieger, J.)). Although the Supreme Court of Colorado has not decided
whether diverging legal and equitable remedies allow an equitable claim to move forward when an
adequate legal claim, sounding in tort, covers the same conduct, the Court concludes that the
Supreme Court of Colorado would follow the Court of Appeals of Colorado decision in Harris Grp.,
Inc. v. Robinson, which concluded that, “[i]n the tort context, the recovery of damages does not
automatically lead to a conclusion that a party had an adequate legal remedy that precludes further
equitable relief.” Harris Grp., Inc. v. Robinson, 209 P.3d at 1205. The Plaintiffs request restitution
for their Colorado unjust-enrichment claim. See Amended Complaint ¶ 193, at 57. The CCPA’s
statutory language, however, expressly prohibits class action recovery for damages. See Colo. Rev.
Stat. Ann. § 6-1-113(2)(“Except in a class action . . . any person who, in a private civil action, is
found to have engaged in . . . any deceptive trade practice . . . shall be liable . . . equal to . . . : The
amount of actual damages sustained.”). Friedman v. Dollar Thrifty Automotive Grp., Inc., 2015
WL 4036319, at *3-6 (D. Colo. July 1, 2015)(Daniel, J.)(concluding “that monetary damages are
barred in class actions under the CCPA”); Martinez v. Nash Finch Co., 886 F. Supp. 2d 1212, 121819 (D. Colo. 2012)(Krieger, J.)(“[T]he CCPA creates no statutory liability for a defendant in a
private class action.”).63 Because the CCPA claim provides no monetary remedy, and unjust
63
The Court acknowledges a Court of Appeals of Colorado decision that notes, in dicta, that
the CCPA “does not preclude class members from bringing an action for actual damages.”
Robinson v. Lynmar Racquet Club, Inc., 851 P.2d 274, 278 (Colo. Ct. App. 1993). The Court
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enrichment provides one, the two claims offer diverging remedies.
The Court concludes,
accordingly, that the Supreme Court of Colorado would determine that the CCPA does not provide
an adequate legal remedy, so the Plaintiffs may plead in the alternative their unjust-enrichment
claim.
2.
The Florida Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy Under FDUTPA.
Florida law prohibits equitable relief if “a plain, adequate and complete remedy at law
exists.” Greenfield Villages v. Thompson, 44 So.2d 679, 683 (Fla. 1950). The Defendants argue
that FDUTPA is an adequate legal remedy that bars unjust-enrichment relief. See MTD at 56-57.
Florida state and federal courts are split on this issue with no clear guidance from the Supreme Court
of Florida. See State Farm Mut. Auto. Ins. Co. v. Physicians Injury Care Center, Inc., 427
F. App’x 714, 722 (11th Cir. 2011)(unpublished), rev’d in part on other grounds, 824 F.3d 1311
(11th Cir. 2014); Matthews v. American Honda Motor Co., No. 12-60630, 2012 WL 2520675, at *2
(S.D. Fla. June 6, 2012)(“[B]ecause Matthews’ unjust enrichment claim is predicated on the same
wrongful conduct as her FDUTPA claim, she does not lack an adequate legal remedy.”); Williams v.
Bear Stearns & Co., 725 So.2d 397, 400 (Fla. Dist. Ct. App. 1998)(concluding that, “if adequate
legal remedies exist, equitable remedies are not available . . . does not apply to claims for unjust
enrichment”)(citing Mobil Oil Corp. v. Dade County Esoil Management Co., Inc., 982 F. Supp. 873,
880 (S.D. Fla. 1997)(Highsmith, J.)); Harris v. Nordyne, LLC, 2014 WL 12516076, at *7 (S.D. Fla.
2014)(Bloom, J.)(collecting cases). The Defendants argue that the ruling from Williams v. Bear
Stearns & Co. stems from a federal district court’s misinterpretation of ThunderWave, Inc. v.
concludes, however, that the Supreme Court of Colorado would disregard that conclusion, because
the Court of Appeals was interpreting old statutory language and the new language more clearly bars
actual damage relief for class-action members. See Martinez v. Nash Finch Co., 886 F. Supp. 2d at
1219.
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Carnival Corp., 954 F. Supp. 1562, 1566 (S.D. Fla. 1997)(Moreno, J.), which concludes only that the
economic-loss doctrine does not apply to unjust-enrichment claims. See Reply at 29 n.20.
The Court concludes that the Florida court’s rulings that the adequate-legal-remedy doctrine
does not apply to unjust enrichment provide no sound reasoning for such a bright-line exception.
See, e.g., Williams v. Bear Stearns & Co., 725 So.2d at 400. Although not in this specific context,
the Supreme Court of Florida has ruled that, “[w]here the Legislature has created such a clear
remedy for a specifically identified evil, a court of equity will enforce that remedy.” Manatee Cty.
V. Town of Longboat Key, 365 So.2d 143, 147 (Fla. 1978). The Court concludes that this Supreme
Court of Florida case is controlling, and, if faced with this issue, it would dismiss the Plaintiffs’
Florida unjust-enrichment claim, because FDUTPA provides an adequate remedy for the harm the
plaintiffs alleged. In so ruling, the Court is mindful that FDUTPA provides recovery for actual
damages, see Fla. Stat. Ann. § 501.211(2), and restitution and actual damages are identical in this
case, see Carriulo v. General Motors Co., 823 F.3d 977, 986 (11th Cir. 2016)(defining FDUTPA
damages as “the value of the product as promised minus the value of the product delivered”).
3.
The Massachusetts Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy under Mass. Gen. Laws. Ch.
93A.
“An equitable remedy for unjust enrichment is not available to a party with an adequate
remedy at law.” Santagate v. Tower, 833 N.E.2d 171, 176 (Mass. App. Ct. 2005).64 Two federal
courts facing an unjust-enrichment claim have determined that “the existence of [the Plaintiff’s]
statutory claim for unfair and deceptive acts and practices precludes her from bringing equitable
64
The Court is aware that, under Erie, it is not bound to follow the Appeals Court of
Massachusetts if it concludes that the Supreme Judicial Court of Massachusetts would decide the
issue differently. See supra n.21. The Court will follow the Appeals Court of Massachusetts’
decision in Santagate v. Tower, however, because the Court has found no indication that the
Supreme Judicial Court of Massachusetts would apply a contrary rule.
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claims for unjust enrichment and money had and received.”
Reed v. Zipcar, Inc., 883
F. Supp. 2d 329, 334 (D. Mass. 2012)(Gorton, J.). See Ferreira v. Sterling Jewelers, Inc., 130
F. Supp. 3d 471, 487 (D. Mass. 2015)(Woodlock, J.). The damage and restitutionary remedy
requested appears to be identical in this case. See Mass. Gen. Laws. Ch. 93A § 9(1); Amended
Complaint ¶ 265, at 71. The Court concludes that, if faced with this case, the Supreme Judicial
Court of Massachusetts would follow these district court decisions and conclude that the presence of
an adequate legal remedy in the form of Mass. Gen. Laws. Ch. 93A, § 2(a) precludes unjustenrichment relief.
4.
The Michigan Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy under MCPA.
According to the Supreme Court of Michigan, “[L]egislative action that provides an adequate
remedy by statute precludes equitable relief.” Tkachik v. Mandeville, 790 N.W.2d at 265. “A
remedy at law, in order to preclude a suit in equity, must be complete and ample, and not doubtful
and uncertain.” Tkachik v. Mandeville, 790 N.W.2d at 265 (citation omitted). “[T]o preclude a suit
in equity, a remedy at law, both in respect to its final relief and its modes of obtaining the relief,
must be as effectual as the remedy which equity would confer under the circumstances.” Tkachik v.
Mandeville, 790 N.W.2d at 265 (citation omitted). The MCPA provides that class-action plaintiffs
may bring an action for actual damages, see Mich. Comp. Law Ann. § 445.911(3)(a), which is
identical to the restitutionary remedy requested, see Amended Complaint ¶ 288, at 76. The Court
concludes, accordingly, that there is an adequate, complete and ample, legal remedy available, and
that the Supreme Court of Michigan would, therefore, dismiss the Plaintiffs’ Michigan unjustenrichment claim.
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5.
The New Jersey Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy Under NJCFA.
“[E]quitable principles of estoppel or unjust enrichment . . . cannot be invoked to subvert [a]
statutory scheme.” Slurzberg v. City of Bayonne, 148 A.2d 171, 176 (N.J. 1959). The NJCFA
provides the remedy that the Plaintiffs seek for unjust enrichment: “Any person violating the
provisions of the within act shall be liable for a refund of all moneys acquired by means of any
practice declared herein to be unlawful.” N.J. Stat. Ann. § 56:8-2.11. See Amended Complaint
¶ 314, at 81. The underlying harm alleged is also the same. Compare Amended Complaint ¶ 295 at
77 with Amended Complaint ¶ 308, at 80. The Court concludes that, if faced with this case, the
Supreme Court of New Jersey would conclude that the presence of an adequate legal remedy in the
form of NJCFA precludes unjust-enrichment relief.
6.
The New York Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy Under NYCDPAP and N.Y.
Gen. Bus. Law § 350.
The New York Court of Appeals has ruled that unjust enrichment does not lie if the
“plaintiffs have an adequate remedy at law.” Samiento v. World Yacht Inc., 883 N.E.2d at 996.
Moreover, “[a]n unjust enrichment claim is not available where it simply duplicates, or replaces, a
conventional contract or tort claim.” Corsello v. Verizon New York, Inc., 967 N.E.2d at 1185. In
Samiento v. World Yacht Inc., the Court of Appeals of New York dismissed an unjust-enrichment
claim, because a New York labor law provided an adequate remedy at law. 883 N.E.2d at 996. See
Response at 67-68. The Court concludes that the Court of Appeals of New York would conclude
similarly here that NYCPDAP and N.Y. Gen. Bus. Law § 350 provide an adequate remedy at law
and would dismiss the unjust-enrichment claim. The lower New York court cases that the Plaintiffs
cite do not persuade the Court otherwise, because one turns on an adequate legal remedy under
contract, which is a separate inquiry, and the other case turns on whether an unjust-enrichment claim
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failed, because the plaintiff had already been compensated for her harm. See Response at 67 (citing
TOT Payments, LLC v. First Data Corp., 9 N.Y.S.3d 44, 45 (N.Y. App. Div. 2015); Farina v.
Bastianich, 984 N.Y.S.2d 46, 50 (N.Y. App. Div. 2014)).
7.
The North Carolina Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy Under North Carolina Law.
“The court’s equitable intervention is obviated when an adequate remedy at law is available
to the plaintiff.”
Embree Const. Group, Inc. v. Rafcor, Inc., 411 S.E.2d 916, 920 (N.C.
1992)(concluding that a statutory remedy did not provide relief to plaintiffs, so their unjustenrichment claim could proceed). The Plaintiffs argue that it would be premature to dismiss the
unjust-enrichment claim. See Response at 68 (citing Thompkins v. Key Health Medical Solutions,
Inc., No. 12-0613, 2015 WL 1292228, at *10 (M.D.N.C. March 23, 2015)(Peake, M.J.)(“In this case,
numerous North Carolina statutes appear to provide adequate remedies for the wrongs alleged.
Regardless, because discovery has yet to illuminate the exact nature of the transactions between
Plaintiffs and Defendant, it would be premature to foreclose Plaintiffs’ claims.”), report adopted,
2015 WL 3902340, at *1 (M.D.N.C. June 24, 2015)(Beaty, J.)). The Court concludes that the
Supreme Court of North Carolina would not follow that opinion. Thompkins v. Key Health Medical
Solutions, Inc. provides no reasoning for why a claim may proceed to discovery when an adequate
legal remedy is available. The Court concludes that allowing discovery is inconsistent with
Twombly and Iqbal if the law does not allow both claims to be pled. The Court has concluded that
the North Carolina statutory scheme plausibly provides the Plaintiffs a remedy, so it likewise
concludes that the Court should dismiss the North Carolina unjust-enrichment claim. See Embree
Const. Group, Inc. v. Rafcor, Inc., 411 S.E.2d at 920.
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8.
The Ohio Unjust-Enrichment Claim Prevails, Because the Plaintiffs’
Legal Remedy Under OSCPA Is Not Complete or Adequate.
“To bring a cause within the jurisdiction of a court of equity, it is requisite that the primary
right involved be an equitable right as distinguished from a legal right, or that the remedy at law as
to the right involved is not full, adequate and complete.” State ex rel. Lien v. House, 58 N.E.2d 675,
678 (Ohio 1944). The OSCPA provides that class-action plaintiffs may bring an action for
rescissionary and actual damages. See Ohio Rev. Code Ann. §1345.09(B); Felix v. Ganley
Chevrolet, Inc., 49 N.E.3d 329, 334-35 (Ohio 2015). In this case, such relief is identical to the
restitutionary remedy requested. See Amended Complaint ¶ 426, at 99-100. The Court, however,
concluded, supra, that the OSCPA must be dismissed without prejudice for failure to give the
requisite notice. The Court concludes that a defect in that pleading demonstrates that the legal
remedy is not necessarily full, adequate, and complete. The Court notes that there is some caselaw
from federal courts noting that a legal claim’s viability has no bearing on whether a legal remedy is
available, see, e.g., In re Porsche Cars N. Am., Inc., 880 F. Supp. 2d 801, 843 (S.D. Ohio
2012)(“[T]he plaintiff has an adequate remedy at law even if his . . . claim is ultimately
unsuccessful), but the Court concludes that Supreme Court of Ohio would not follow that ruling.
Equity is meant to fill in the gaps where law fails. See Abraham v. WPX Energy Production, LLC,
20 F. Supp. 3d 1244, 1282 (D.N.M. 2014)(Browning, J.)(“Equity stepped in when the remedy at
law -- the contract theory -- was not a viable option for recovery.”). Barring equitable claims in the
alternative is meant to block equity from working an injustice by inflicting double damages on the
defendant. See Abraham v. WPX Energy Production, LLC, 20 F. Supp. 3d at 1282 (“[E]quity will
not work an additional injustice.”). Where the legal remedy is unavailable, however, the potential
for double recovery vanishes. Here, the OSCPA legal remedy might ultimately fail. The Court
concludes that, at this early stage in the litigation, where a legal remedy appears uncertain, the
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Supreme Court of Ohio would conclude that a viable equitable claim premised on the same or
similar conduct is not foreclosed. Cf. Abraham v. WPX Energy Production, LLC, 20 F. Supp. 3d at
1284 (concluding that an unjust-enrichment claim could proceed under New Mexico law when a
plaintiff alleges “that there is something preventing his recovery on the contract claim.”). The Court
concludes, accordingly, that the legal remedy is not complete or ample, and that the Supreme Court
of Ohio would, therefore, not dismiss the Plaintiffs’ unjust-enrichment claims on this ground.
9.
The Washington Unjust-Enrichment Claim Would Fail, Because the
Plaintiffs Have an Adequate Legal Remedy Under WCPA.
“Equitable relief is available only if there is no adequate legal remedy.” Orwick v. City of
Seattle, 692 P.2d 793, 796 (Wash. 1984). In Seattle Professional Engineering Employees Ass’n v.
Boeing Co., 991 P.2d 1126 (Wash. 2000)(en banc)(“Boeing Co.”), for example, the Supreme Court
of Washington determined that the plaintiffs “are not entitled to pursue a remedy in equity” where
they have an available statutory remedy under Wash. Rev. Code § 49.52.40. See Boeing Co., 991
P.2d at 1134. The Court concludes that, if faced with this case, the Supreme Court of Washington
would similarly decide that the WCPA’s availability precludes unjust-enrichment relief, because, as
in Boeing Co., the Plaintiffs have a statutory remedy available that provides them identical legal and
equitable relief.
D.
THE COURT DISMISSES THE NEW JERSEY UNJUST-ENRICHMENT
CLAIM,
BECAUSE
THE
PLAINTIFFS
CANNOT
PLEAD
REMUNERATION.
The Court concludes that the Plaintiffs’ New Jersey unjust-enrichment claim fails, because
they cannot allege one of the requisite elements. See MTD at 62. “To establish a claim for unjust
enrichment, ‘a plaintiff must show both that defendant received a benefit and that retention of that
benefit without payment would be unjust.’” Lliadis v. Wal-Mart Stores, Inc., 922 A.2d 710, 723
(N.J. 2007)(quoting VRG Corp. v. GKN Realty Corp., 641 A.2d 519, 526 (N.J. 1994)). See Thieme
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v. Aucoin-Thieme, 151 A.3d 545, 557 (N.J. 2016). “That quasi-contract doctrine also ‘requires that
plaintiff show that it expected remuneration from the defendant at the time it performed or conferred
a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual
rights.’” Lliadis v. Wal-Mart Stores, Inc., 922 A.2d at 723(quoting VRG Corp. v. GKN Realty
Corp., 641 A.2d at 526). The Plaintiffs cannot plead that they expected remuneration-- i.e., money
paid for services rendered -- so their claim fails.
E.
THE COURT DISMISSES THE OHIO UNJUST-ENRICHMENT CLAIM,
BUT NOT THE MICHIGAN, NEW JERSEY, OR NORTH CAROLINA
UNJUST-ENRICHMENT CLAIMS, FOR THE INDEPENDENT REASON
THAT THE PLAINTIFFS HAVE NOT ALLEGED A DIRECT BENEFIT.
The Defendants move to dismiss the Michigan, New Jersey, North Carolina, and Ohio
unjust-enrichment claims for the independent reason that the Plaintiffs do not allege that the
Defendants received a direct benefit from the Plaintiffs. See MTD at 60. The Plaintiffs, however,
allege that the Defendants “received a direct benefit” from the Plaintiffs “in the form of a price
premium, increased sales, and increased market share.” Amended Complaint ¶¶ 282, 310, 390, 422,
at 75, 80-81, 95, 99. The Court determines that the Supreme Courts of Michigan, New Jersey, and
North Carolina would accept the Plaintiffs’ allegations of an indirect benefit from increased market
share, but that the Supreme Court of Ohio would not. Accordingly, the Ohio unjust-enrichment
claim fails for the independent reason that the defendants received no direct benefit.
1.
Increased Market
Requirement.
Share
Satisfies Michigan’s Indirect-Benefit
Under Michigan Law, the Defendants must receive a benefit, but it need not be direct. See
Kammer Asphalt Paving Co., Inc. v. East China Tp. Schools, 504 N.W.2d 635, 641 (Mich.
1993)(“Kammer”). In Kammer, the Supreme Court of Michigan permitted an unjust-enrichment
claim from a sub-contractor to proceed against a defendant school, because the sub-contractor’s
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work “indirectly provided defendant a benefit.” 504 N.W.2d at 641. There was, however, direct
contact between the two parties, and the defendant school assured the sub-contractor plaintiff that the
defendant would be paid from bonds. See 504 N.W.2d at 641. The Kammer court, accordingly,
concluded that “equity demands plaintiff to be permitted to go forward with this court for those
damages that arose after certification . . . and verbal assurances of protection by the bonds.” 504
N.W.2d at 641. The Defendants cite A&M Supply Co. v. Microsoft Corp., 2008 WL 540883, at *2
(Mich. Ct. App. February 28, 2008) for its holding that indirect Microsoft product purchases did not
establish the requisite direct benefit under Michigan Law. See A&M Supply Co. v. Microsoft Corp.,
2008 WL 540883, at *2. See also In re Refrigerant Compressors Antitrust Litig., 2013 WL
1431756, at *26 (E.D. Mich. April 9, 2013)(Cox, J.)(dismissing an unjust-enrichment claim, because
“[a]ny benefit the IP Plaintiffs conferred would be on others in the chain of distribution from whom
they purchased, not on Defendants”); MTD at 60 n.17. The Court does not conclude that the
Supreme Court of Michigan’s Kammer decision imposes such an onerous direct-benefit requirement.
As already explained, in Kammer, the Supreme Court of Michigan affirmed that an indirect benefit
met the requisite unjust-enrichment requirement. See 504 N.W.2d at 641. The Court of Appeals of
Michigan’s reasoning in A&M Supply Co. v. Microsoft Corp. narrowing Kammer to situations
where the plaintiff and defendant have direct contact with each other is not grounded in a convincing
principle. See 2008 WL 540883, at *2. How a discussion between the plaintiff and the defendant
makes a benefit more direct is unclear, and indicates a reliance requirement and not a direct-benefit
requirement.
The Court also concludes that, based on the Amended Complaint’s allegations, the
Defendants plausibly received a benefit in the form of increased market share. See Amended
Complaint ¶¶ 282, 310, 390, 422, at 75, 80-81, 95, 99. The Plaintiffs contend that the Defendants
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launched an aggressive marketing campaign in 2015 to highlight “Natural American Spirit’s 100percent additive-free natural tobacco proposition,” Amended Complaint ¶ 44, at 21-22, and sold 900
million more cigarettes in 2015 than 2014 for a total of 4.8 billion cigarettes, Amended Complaint
¶ 45(c), at 22. Although the Amended Complaint does not indicate how large the cigarette market is
overall, it is plausible that the sale of 900 million more cigarettes would result in increased market
share. It is unclear if the Plaintiffs made similar market-share allegations in the cases that the
Defendants’ cite. Accordingly, the Court concludes that the Supreme Court of Michigan would not
dismiss the unjust-enrichment claim for a lack of a direct benefit.
2.
Increased Market Share Satisfies New Jersey’s Unjust-Enrichment Test.
The Supreme Court of New Jersey has not determined whether a direct-benefit requirement
exists for unjust-enrichment claims, but a New Jersey appellate court has recognized that unjust
enrichment “involve[s] some direct relationship between the parties.” Callano v. Oakwood Park
Homes Corp., 219 A.2d 332, 335 (NJ. Super. Ct. App. Div. 1966). See Snyder v. Farnam Cos., 792
F. Supp. 2d 712, 724 (D.N.J. 2011)(Martini, J.)(“[T]he plaintiff [must] allege a sufficiently direct
relationship with the defendant to support the [unjust-enrichment] claim.”); Cooper v. Samsung
Electronics America, Inc., No. 07-3853, 2008 WL 4513924, at *10 (D.N.J. September 30,
2008)(Linares, J.)(“Here, although Cooper alleges that Samsung was unjustly enriched through the
purchase of the television, there was no relationship conferring any direct benefit on Samsung . . . as
the purchase was through a retailer.”). In contrast, in Stewart v. Beam Global Spirits & Wine, 877
F. Supp. 2d 192, 200 (D.N.J. 2012)(Hilliman, J.), the Honorable Judge Noel Hillman, United States
District Judge for the District of New Jersey, determined that a direct-benefit allegation is not
required where the defendant has “engaged in fraudulent conduct and misrepresented” a product
“through a direct nationwide advertising and marketing scheme.” 877 F. Supp. 2d at 200. Judge
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Hillman reasoned that the relationship requirement “simply reflects the need to curtail the reach of
this equitable remedy . . . to prevent a finding of liability in cases where the defendant had absolutely
no course of dealings with, and no other demonstrated connection to, the plaintiff.”
F. Supp. 2d 192 at 200.
877
He determined that the direct-benefit requirement is “inequitable”
particularly when the “Plaintiffs cannot seek a remedy directly from the [retailer] based on
misrepresentations allegedly made by” the Defendants, as the retailers did not make the
misrepresentations. 877 F. Supp. 2d 192 at 200.
Accordingly, this Court finds that where a plaintiff alleges that a defendant
manufacturer has made false claims or misrepresentations directed for the purpose of
generating retail sales, and where those retails sales could have the effect of
increasing the amount of wholesale sales to the manufacturer, it is plausible that a
plaintiff can show evidence of a sufficiently direct relationship between the parties
under New Jersey law.
877 F. Supp. 2d 192 at 200. The Court concludes that this reasoning is persuasive and concludes
that the Supreme Court of New Jersey would adopt its reasoning for this particular case, i.e.,
allegations of manufacturer misrepresentations. See 877 F. Supp. 2d 192 at 200 n.6 (noting that the
Supreme Court of New Jersey affirmed a class certification under factually similar circumstances in
Lee v. Carter-Reed Co., L.L.C., 4 A.3d 561 (N.J. 2010), although the court did not address the
direct-benefit element specifically). The cases the Defendants cite are not misrepresentation cases,
nor is there evidence that the plaintiffs alleged that the direct benefit conferred was increased market
share. See MTD at 61 n.18.
3.
North Carolina’s Unjust-Enrichment Requirement is satisfied.
The Supreme Court of North Carolina has not determined whether unjust enrichment requires
a direct benefit. The Court of Appeals of North Carolina, however, has ruled that a plaintiff must
show that “she conferred a benefit directly on defendant.” Effer v. Pyles, 94 S.E.2d 149, 152 (N.C.
Ct. App. 1989). See Baker v. Const. Co., Inc. v. City of Burlington, 683 S.E.2d 790 (table), 2009
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WL 3350747, at *7 (N.C. Ct. App. 2009). In arguing that no direct-benefit requirement exists, the
Plaintiffs cite Metric Constructors, Inc. v. Bank of Tokyo-Mitsubishi, Ltd., 72 F. App’x 916, 921
(4th Cir. 2003)(unpublished)(per curiam)(before Williams, J., Michael J., and Shed, J.), which
asserts that Effer v. Pyles was misguided, and that the Supreme Court of North Carolina, in Embree
Construction Group. Inc. v. Rafcor, Inc., 411 S.E.2d at 923, subsequently “suggest[ed] a broader
approach to unjust enrichment than is indicated by Effer’s ‘direct benefit’ rule.”
Metric
Constructors, Inc. v. Bank of Tokyo-Mitsubishi, Ltd., 72 F. App’x at 921. The Fourth Circuit held
that, “[u]nder North Carolina law, it is sufficient for a plaintiff to prove that it has conferred some
benefit on the defendant, without regard to the directness of the transaction.” Metric Constructors,
Inc. v. Bank of Tokyo-Mitsubishi, Ltd., 72 F. App’x at 921. The Fourth Circuit’s conclusion that
Embree Construction Group. Inc. v. Rafcor, Inc. created a broader direct-benefit approach persuades
the Court. The Supreme Court of North Carolina, in Embree Construction. Group. Inc. v. Rafcor,
Inc., determined that a contractor plaintiff could maintain an unjust-enrichment action against a third
party bank with whom the contractor had no contract. See 411 S.E.2d at 919, 922. The benefit
relayed to the third-party bank was “the security for which [the bank] had bargained” for with
another party -- “a completely constructed building.” See 411 S.E.2d at 919. The contractor
plaintiff, however, had no direct relations with the bank, but that lack of relationship was immaterial
to the Supreme Court of North Carolina. See 411 S.E.2d at 919, 922. The Court concludes that
Embree Contr. Grp. Inc. v. Rafcor, Inc.’s holding signaled that an indirect benefit is sufficient in
North Carolina for an unjust-enrichment claim to prevail. Because the Plaintiffs conferred an
indirect benefit on the Defendants in the form of increased market share, their North Carolina unjustenrichment claim is not defeated on this ground.
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4.
The Plaintiffs Do Not Satisfy Ohio’s Direct-Benefit Test.
The Supreme Court of Ohio has clearly stated that “an indirect purchaser cannot assert a
common-law claim for restitution and unjust enrichment against a defendant without establishing
that a benefit had been conferred upon the defendant by the purchaser.” Johnson v. Microsoft Corp.,
834 N.E.2d 791, 799 (Ohio 2005). When “no economic transaction occur[s] between” the plaintiff
and the defendant, the plaintiff “cannot establish that [the defendant] retained any benefit ‘to which
[it] is not justly entitled.’” Johnson v. Microsoft Corp., 834 N.E.2d at 799 (quoting Keco Indus., Inc.
v. Cincinnati & Suburban Bell Tel. Co., 141 N.E.2d 465, 467 (Ohio 1957)). The Court concludes
that Johnson v. Microsoft Corp. controls, and the Court dismisses the Plaintiffs’ unjust-enrichment
claim, because the Plaintiffs are indirect purchasers who had no direct economic transaction between
themselves and the Defendants.
VIII. THE COURT DISMISSES THE PLAINTIFFS’ FLORIDA, ILLINOIS, AND NEW
YORK EXPRESS WARRANTY CLAIMS.
The Defendants move to dismiss the Plaintiffs’ express warranty claims for three reasons.
First, they argue that limiting language modifies any express warranty so that there was no breach.
Second, they argue that a subset of the express warranty claims must be dismissed, because the
Plaintiffs failed to allege the requisite pre-litigation notice. Finally, they aver that another subset of
the express warranty claims must be dismissed, because the Plaintiffs have not alleged privity of
contract. The Court concludes that the Defendants have not identified limiting language to the
express warranties, but it dismisses the Florida, Illinois, and New York claims, because the Plaintiffs
have either failed to allege pre-litigation notice or privity.
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A.
THE DEFENDANTS HAVE NOT IDENTIFIED LIMITING LANGUAGE IN
THE EXPRESS WARRANTIES THAT WOULD QUALIFY THOSE CLAIMS
FOR DISMISSAL.
The Plaintiffs contend that the cigarettes’ product labels, including the descriptors at issue -i.e., additive-free, natural, and organic -- create an actionable express warranty. See Response at 72.
The Defendants argue that, under California and New York law, the express warranty claims fail for
the same reasons that the packaging and advertising would not mislead a reasonable consumer. See
MTD at 64-65. The Court declines to adopt that line of reasoning for the same reasons it rejected
their reasonable consumer arguments as articulated above.
The Defendants also argue that California, Colorado, Florida, Illinois, New Jersey, New
York, New Mexico, and North Carolina law foreclose the express warranty claims, because
warranties must be read as “reasonabl[y] consistent with potentially limiting language.” MTD at 65
(citing Cal. Com. Code § 2316(1); Colo. Rev. Stat. § 4-2-316(1); Fla. Stat. § 672.316(1); 810 Ill.
Comp. Stat. Ann. § 5/2-316(1); N.J. Stat. Ann. 12A:2-316(1); N.M. Stat. Ann. § 55-2-316(1); N.Y.
U.C.C. Law § 2-316(1); N.C. Gen. Stat. § 25-2-316(1)). According to the Defendants, the menthol
descriptor is limiting language and necessarily modifies the warranty such that it could not be read
“as promising the absence of menthol.” MTD at 66. From that premise, they contend that “no
reasonable consumer” would rely on a promise that menthol cigarettes did not contain menthol.
MTD at 66. See Reply at 34. This assertion is another re-packaging of the Defendants’ reasonableconsumer arguments. The Defendants’ key inference again, which the Court does not accept, is that
a reasonable consumer would know that menthol is an additive. The Court has already concluded
that a reasonable consumer could read the no-additive term and conclude that menthol is not an
additive. The menthol descriptor, thus, does not reasonably limit the no-additive term, and the
Defendants’ argument fails.
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B.
THE FLORIDA, ILLINOIS, AND NEW YORK EXPRESS WARRANTY
CLAIMS FAIL, BECAUSE THE AMENDED COMPLAINT CANNOT SERVE
AS THE REQUISITE PRE-LITIGATION NOTICE.
The Defendants’ argue that the Plaintiffs failed to give pre-litigation notice in California,
Florida, Illinois, New Mexico, New York, and North Carolina. See MTD at 66. Under those states’
laws, a buyer must, “within a reasonable time after he or she discovers or should have discovered
any breach, notify the seller of breach or be barred from any remedy.”
Cal. Com. Code
§ 2607(3)(A). See Fla Stat. § 672.607(3)(a); 810 Ill. Comp. Stat. 5/2-607(3)(a); N.M. Stat.
Ann. § 55-2-607(3)(a); N.Y. U.C.C. Law § 2-607(3)(a); N.C. Gen. Stat. § 25-2-607(3)(a). The
Plaintiffs argue that the Defendants had actual knowledge that their menthol cigarettes were not one
hundred percent additive free, and that the Amended Complaint is sufficient to put the Defendants’
on notice. See Response at 73. The Court disagrees with the Plaintiffs’ first argument. Actual
knowledge of the deception does not suffice, because, in every state but Illinois, the plaintiff has a
burden to provide notice, so the Defendants’ general awareness cannot meet the requirement. See
Cal. Com. Code § 2607(3)(a); Fla Stat. § 672.607(3)(a); N.M. Stat. Ann. § 55-2-607(3)(a); N.Y.
U.C.C. Law § 2-607(3)(a); N.C. Gen. Stat. § 25-2-607(3)(a).65 Regarding whether the Amended
Complaint suffices for notice, the Court concludes that it provides sufficient notice for the
California, New Mexico, and North Carolina claims, but not for the Florida, Illinois, or New York
claims.
Under California law, a buyer must, “within a reasonable time after he or she discovers or
should have discovered any breach, notify the seller of breach or be barred from any remedy.” Cal.
Com. Code § 2607(3)(a). See David v. Winn Automotive, Inc., 2016 WL 4506069, at *7 (Cal. Ct.
65
For Illinois, the Court does not adopt the argument for state specific reasons explained
below.
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App. August 29, 2016)(unpublished)(ruling that rescission notice was not requisite breach notice);
Cardinal Health 301, Inc. v. Tyco Electronics Corp., 87 Cal. Rptr. 3d 5, 21-22 (Cal. Ct. App.
2008)(ruling that notice by filing a lawsuit was insufficient as a matter of law).66 The notice
requirement’s purpose is “to allow the defendant opportunity for repairing the defective item,
reducing damages, avoiding defective products, and negotiating settlements.” Pollard v. Saxe &
Yolles Dev. Co., 525 P.2d 88, 92 (Cal. 1974)(ruling that four-year delay in notice was
unreasonable). In an opinion construing similar language in a previously codified breach-expresswarranty notice requirement, the Supreme Court of California concluded that “[t]he notice
requirement . . . is not an appropriate one for the court to adopt in actions by injured consumers
against manufacturers with whom they have not dealt.” Greenman v. Yuba Power Products, Inc.,
377 P.2d 897, 900 (Cal. 1963). It explained: “The injured consumer is seldom steeped in the
business practice which justifies the rule, and at least until he has had legal advice it will not occur to
him to give notice to one with whom he has had no dealings.” Greenman v. Yuba Power Products,
Inc., 377 P.2d at 900 (ruling that a plaintiff consumer who did not give timely notice of an express
warranty breach was not barred from bringing an express warranty suit). See Zapata Fonseca v.
Goya Foods Inc., No. 16-2559, 2016 WL 4698942, at *6 (N.D. Cal. September 8, 2016)(Koh, J.);
Hydroxycut Marketing and Sales Practices Litig., 801 F. Supp. 2d 993, 1009 (S.D. Cal.
2011)(concluding that a plaintiffs’ allegation that all “conditions precedent, including notice” had
been met satisfied the pre-litigation notice requirement, because notice “is not strictly required under
the laws of a number of states” and, in a number of states, “the filing of a complaint can serve as
66
The Court is aware that, under Erie, it is not bound to follow Court of Appeals of California
if it concludes that the Supreme Court of California would decide the issue differently. See supra
n.21. The Court will follow the Court of Appeals of California’s decisions in David v. Winn
Automotive, Inc. and Cardinal Health 301, Inc. v. Tyco Electronics Corp., however, because the
Court has found no indication that the Supreme Court of California would apply a contrary rule.
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notice.”). The Court concludes that the Supreme Court of California would follow its precedent
from Greenman v. Yuba Power Products, Inc. and would not require more notice than the Plaintiffs
have already given.67
Florida law states: “The buyer must within a reasonable time after he or she discovers or
should have discovered any breach notify the seller of breach or be barred from any remedy.” Fla.
Stat. Ann. § 627.607(3)(a). Florida federal courts interpreting this statute have ruled that plaintiffs
need not give notice to a product’s manufacturer, because the statute requires only seller notification.
See Felice v. Invicta Watch Co. of Am., Inc., No. 16-62772, 2017 WL 3336715, at *6 (S.D. Fla.
August 4, 2017)(collecting cases)(Rosenberg, J.); Fla Stat. Ann. § 672.103(1)(d) (defining seller as
“a person who sells or contracts to sell goods”). But see General Matters, Inc. v. Paramount Canning
Co., 382 So.2d 1262, 1264 (Fla. Dist. Ct. App. 1980)(dismissing an express warranty claim where a
plaintiff failed to notify a manufacturer). The Court concludes that the statute refers to seller
notification and not to manufacturer notification, because the statute states seller and the statute’s
definition of seller does not encompass the manufacturer. It concludes, however, that Plaintiffs’
allegation that it has met “[a]ll conditions precedent” to an express warranty claim is too conclusory
to meet the statute’s notice requirement and that the Supreme Court of Florida would conclude the
same. Amended Complaint ¶ 456, at 104. Although the plaintiffs are not suing the seller, the
67
The Defendants cite In re Mentor Corp. ObTape Transobturator Slings Products Liability
Litig., No. 12-0238, 2015 WL 5468791, at *2 (M.D. Ga. September 16, 2015)(Land, C.J.) for the
conclusion that Greenman v. Yuba Power Products, Inc. stands only for the proposition that
“procedural requirements of a warranty claim cannot defeat strict products liability in tort.” In re
Mentor Corp. ObTape Transobturator Slings Products Liability Litig., 2015 WL 5468791, at *2. See
Reply at 36. The Court disagrees with the Defendants. The Supreme Court of California addresses
express warranty requirements regardless of alternative liability theories in Greenman v. Yuba
Power Products, Inc., and the case’s strict liability discussion explains an alternative rationale for its
conclusion and not an exclusive one. See Greenman v. Yuba Power Products, Inc., 377 P.2d at 900
(“Moreover, to impose strict liability . . . it was not necessary for plaintiff to establish an express
warranty.”).
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statute’s language is unequivocal; seller notice is required or an express warranty claim is barred.
See Fla. Stat. Ann. § 627.607(3)(a); Felice v. Invicta Watch Co. of Am., Inc., 2017 WL 3336715, at
*6 (noting that the plaintiff gave notice to the seller even though the seller was not a named
defendant). The Plaintiffs have not alleged that they notified the seller, so the claim fails.
Illinois law similarly requires a buyer to give notice to the seller of a breach within a
reasonable time or be barred from recovery. See 810 Ill. Comp. Stat. 5/2-607(3)(a). This notice is
not required when “(1) the seller has actual knowledge of the defect of the particular product; or (2)
the seller is deemed to have been reasonably notified by the filing of the buyer’s complaint.”
Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 589 (Ill. 1996). Generalized knowledge about
the product defect stemming from third party concerns “is insufficient to fulfill the plaintiffs’ UCC
notice requirement.” Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d at 590. The manufacturer
must be “somehow apprised of the trouble with the particular product purchased by a particular
buyer.” Connick v. Suzuki Motor Co., Ltd, 675 N.E.2d at 590. “Only a consumer plaintiff who
suffers a personal injury may satisfy the section 2-607 notice requirement by filing a complaint
stating a breach of warranty action.” Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d at 590. The
Court concludes that the Plaintiffs meet neither of those exceptions. Although the Defendants may
have had generalized knowledge that their labeling and advertising might be deceptive, they had no
knowledge of the particular buyers at issue. Moreover, the injury here is not a personal injury.
New Mexico also prohibits express warranty claims absent notice to the seller within a
reasonable time. See N.M. Stat. Ann. § 55-2-607(3)(a). No New Mexico case has determined
whether filing a complaint satisfies the notice requirement. See Badilla v. Wal-Mart Stores East,
Inc., 2017-NMCA-021, ¶ 11, 389 P.3d 1050, 1054. The Supreme Court of New Mexico has
explained, however:
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a person notifies or gives notice or notification to another by taking such steps as
may be reasonably required to inform the other in ordinary course whether or not
such other actually comes to know of it. . . . The content of the notification need
merely be sufficient to let the seller know that the transaction is still troublesome and
must be watched. . . . The notification which saves the buyer’s rights under this
article need only be such as informs the seller that the transaction is claimed to
involve a breach, and thus opens the way for normal settlement through negotiation.
State ex Rel Concrete Sales & Equip. Rental Co., Inc. v. Kent Nowlin Const., Inc., 1987-NMSC114, ¶ 17, 746 P.2d 645, 648-49 (citing N.M. Stat. Ann. § 55-1-201(26), now codified at § 55-1202). When there is no definitive Supreme Court of New Mexico interpretation, New Mexico courts
often look to out-of-state authorities. See Badilla v. Wal-Mart Stores East, Inc., 2017-NMCA-021,
¶ 11, 389 P.3d at 1054 (“Because the UCC is a uniform law of interstate application, we turn to outof-state authorities.”). As explored above, California has removed the notice requirement when
plaintiffs sue manufacturers for injuries, and, as explored below, North Carolina has determined that
complaints may serve as the requisite notice. See Greenman v. Yuba Power Products, Inc., 377 P.2d
at 900; Maybank v. S.S. Kresge Co., 273 S.E.2d at 683-84. The Court has previously concluded that
the Supreme Court of New Mexico would relax UCC standards for lawsuits in light of potential
consumer harm. See Bhandari v. VHA Southwest Community Health Corp., No. 09-0932, 2011 WL
4669848, at *24 (D.N.M. March 30, 2011)(Browning, J.). The Court determines that the Supreme
Court of New Mexico is likely to agree with the Supreme Court of California’s reasoning that notice
should not be required in these suits, because “[t]he injured consumer is seldom steeped in the
business practice which justifies the rule, and at least until he has had legal advice it will not occur to
him to give notice to one with whom he has had no dealings.” Greenman v. Yuba Power Products,
Inc., 377 P.2d at 900. The Court also concludes that notice via the Amended Complaint serves the
purposes that the Supreme Court of New Mexico has identified, namely, that notice must “open[] the
way for normal settlement through negotiation.” State ex Rel Concrete Sales & Equip. Rental Co.,
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Inc. v. Kent Nowlin Const., Inc., 1987-NMSC-114, ¶ 17, 746 P.2d at 648-49. Filing a complaint
often triggers settlement negotiations. The Court concludes, accordingly, that the Supreme Court of
New Mexico would follow the Supreme Court of California and would not require notice beyond the
Amended Complaint.
New York law requires that the buyer provide notice to the seller within a reasonable time
after discovering the breach of an express warranty. See N.Y. U.C.C. Law § 2-607(3)(a). The New
York Supreme Court, Appellate Division, has eliminated the requirement in “situations involving
goods sold for human consumption.” Fischer v. Mead Johnson Labs., 41 A.D.2d 737, 737 (N.Y.
App. Div. 1973). The decision involves, however, a plaintiff’s personal injury, which at least one
court has distinguished on those grounds. See In re 5-Hour ENERGY Marketing and Sales Practices
Litig., No. 13-2438, 2015 WL 12734796, at *9 (C.D. Cal. January 22, 2015)(Gutierrez, J.). The
Court concludes that Fischer v. Mead Johnson Labs is not correctly cabined to only personal injury
cases, as it contemplates all cases “grounded on tortious elements,” Fischer v. Mead Johnson Labs.,
41 A.D.2d at 737 (citing Kennedy v. Woolworth Co., 205 A.D. 648, 649 (N.Y. App. Div. 1923)), but
the Court is also not convinced that the Court of Appeals of New York would write in an exception
to the statute’s clear language to benefit a purchaser, which currently does not allow a complaint to
suffice for notice in manufacturer-consumer cases. The Court of Appeals of New York has not
expressed the same willingness to modify the UCC for public policy concerns as the Supreme Court
of New Mexico has. See Borcre Leasing Corp. v. General Motors Corp. (Allison Gas Turbine Div.),
645 N.E.2d 44*8, 1196 (N.Y. 1995)(“Having foregone protecting itself with UCC warranties,
plaintiff should not be permitted to fall back on tort when it has failed to preserve its . . . remedies.”
(ellipses in original)(quotations omitted)). The Court concludes, accordingly, that it should dismiss
the New York express warranty claim.
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North Carolina also requires that the buyer give notice within a reasonable time after the
buyer discovers the breach to recover under an express warranty theory. See N.C. Gen. Stat. § 25-2607(3)(a). The Supreme Court of North Carolina has ruled that filing a lawsuit may serve as notice.
See Maybank v. S.S. Kresge Co., 273 S.E.2d at 683-684. It has also ruled that the reasonable time
requirement is relaxed in consumer defective-goods cases that have caused personal injury or where
the seller has, regardless of notice, had a reasonable opportunity to learn the facts so that the seller
may defend himself. See Maybank v. S.S. Kresge Co., 273 S.E.2d at 684 (ruling that a notice delay
of three years was reasonable in a consumer-defect personal-injury case). The Court concludes that
the reasonable notice requirement should be relaxed here too, even though it is not a personal injury
case, because the same rationale in personal injury cases applies here: “the damage has already
occurred and is irreversible.” Maybank v. S.S. Kresge Co., 273 S.E.2d at 684. There is no chance
that the Defendants can fix the deception; the cigarettes have already been purchased and consumed.
The Court concludes, accordingly, that it should not dismiss the North Carolina express warranty
claim on the notice requirement ground.
C.
THE COURT DISMISSES THE FLORIDA AND ILLINOIS EXPRESS
WARRANTY CLAIMS FOR LACK OF PRIVITY.
The Defendants argue that the Court should dismiss the Plaintiffs’ express warranty claims
from Florida, Illinois, and New York for lack of privity. See MTD at 67. The Plaintiffs rejoin that
there is an exception to the privity requirement under all three states’ laws for labeling deceptions.
See Response at 75. The Court of Appeals of New York has concluded that privity is not required
against a manufacturer or the advertiser for economic loss, so the Court does not dismiss the
Plaintiffs’ New York claim on that ground. See Randy Knitwear, Inc. v. American Cyanamid Co.,
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181 N.E.2d 399, 400-02 (N.Y. 1962); Mahoney v. Endo Health Solutions, Inc., No. 15-9841, 2016
WL 3951185, at *6 (S.D.N.Y. July 20, 2016)(Cote, J.).68
The Supreme Courts of Florida and Illinois have not decided the issue.69 Lower state and
federal courts in those states are divided. Compare Hill v. Hoover, 899 F. Supp. 2d 1259, 1266
(N.D. Fla. 2012)(Mickle, J.); Northern Ins. Co. of N.Y. v. Silverton Marine Corp., No.10-0345, 2010
WL 2574225, at *2 (N.D. Ill. June 23, 2010)(Zagel, J.); Intergraph Corp. v. Stearman, 555 So.2d
1282, 1283 (Fla. Dist. Ct. App. 1990) with Mednick v. Precor, Inc., No. 14-3624, 2014 WL
6474915, at *5 (N.D. Ill. November 13, 2017)(Leinenweber, J); Smith v. Wm. Wrigley Jr. Co., 663
F. Supp. 2d 1336, 1343 (S.D. Fla. 2009)(Cohn, J.); Cedars of Lebanon Hosp. Corp. v. European Xray Distributors of America, Inc., 444 So.2d 1068, 1072 (Fla. Dist. Ct. App. 1984); Fischetti v.
American Isuzu Motors, Inc., 918 So.2d 974, 976 (Fla. Dist. Ct. App. 2005). Neither statute
governing express warranties discusses privity with manufacturers, and the Court has, in the past,
noted that vertical-privity issues are proper for judicial resolution. See Fla. Stat. § 672.313; 810 Ill.
Comp. Stat. 5/2-601-616; Bellman v. NXP Semiconductors USA, Inc., 248 F. Supp. 3d at 1151
(D.N.M. 2017).
The Supreme Court of Florida’s jurisprudence regarding privity has been relatively murky.
In Manheim v. Ford Motor Co., 201 So.2d 440, 442 (Fla. 1967), it ruled that “[o]ur Court has
68
Some federal cases suggest that Randy Knitwear, Inc. v. American Cyanamid Co. is no
longer good law, because the New York legislature ratified the UCC after the decision. See Koenig
v. Boulder Brands, Inc., 995 F. Supp. 2d 274, 290 (S.D.N.Y. 2014)(Ramos, J.); Ebin v. Kangadis
Food Inc., No. 13-2311, 2013 WL 6504547, at *6 (S.D.N.Y. December 11, 2013)(Rakoff, J.). The
Court disagrees that the UCC displaces the Court of Appeals of New York’s determination on
vertical privity, because the UCC does not govern vertical privity with manufacturers, and the Court
has already determined that vertical privity issues are properly judicially resolved. See Bellman v.
NXP Semiconductors USA, Inc., 248 F. Supp. 3d 1081, 1151 (D.N.M. 2017)(Browning, J.).
69
The Supreme Court of Illinois expressly declined to address the issue. See Collins Co.,
Ltd. v. Carboline Co., 532 N.E.2d 834, 837, 841 (Ill. 1988).
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become aligned with those courts holding that an action may be brought against a manufacturer
notwithstanding want of privity,” but it later walked back that holding in Kramer v. Piper Aircraft
Corp., 520 So. 2d 37, 39 (Fla. 1988), clarifying that it had created a strict liability action in tort,
which had supplanted the no-privity requirement in breach-of-implied-warranty cases. See Cedars
of Lebanon Hosp. Corp. v. European X-Ray Distributors of Am., Inc., 444 So. 2d 1068, 1070-71
(discussing Florida’s history with the privity requirement); Smith v. Wm. Wrigley Jr. Co., 663
F. Supp. 2d at 1342-43. The Supreme Court of Illinois’ jurisprudence has been similarly ambiguous.
In Collins Co. Ltd. v. Carboline Co., the Supreme Court of Illinois left “a door at least slightly ajar
for future extension of some warranties in appropriate circumstances to nonprivity plaintiffs,” but
refused to decide the issue. Collins Co. Ltd. v. Carboline Co., 532 N.E. 2d at 842. See Szajna v.
General Motors Corp., 503 N.E.2d 760, 766 (Ill. 1986)(noting that “the professed neutrality of” the
UCC on the privity requirement “should not be viewed as an invitation to the courts to abolish the
privity requirement . . . [n]or should it be viewed as a prohibition against further development in that
direction.”). It has, however, ruled that privity must exist for breach of implied warranties when the
harm alleged is economic loss. See Rothe v. Cadillac, Inc., 518 N.E.2d 1028, 1029-30 (Ill. 1988).
Given the reticence that the Supreme Courts of both states have expressed toward modifying the
privity requirement, the Court concludes that neither would do away with the privity requirement to
breach-of-express-warranty claims producing pure economic loss.
The Court, accordingly,
dismisses the Illinois and Florida express warranty claims for lack of privity.
IX.
THE PLAINTIFFS’ REQUESTS FOR INJUNCTIVE RELIEF ARE NOT
RENDERED MOOT.
The Plaintiffs request an injunction prohibiting the Defendants from advertising Natural
American cigarettes as natural and additive free. See Amended Complaint ¶ 159, at 50, Prayer for
Relief ¶ C, at 105. The Defendants argue that the Plaintiffs’ request is rendered moot, because the
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Defendants have entered into a Memorandum of Agreement with the FDA, which requires them to
cease using those terms, except for the natural term in their brand name. See MTD at 68;
Memorandum of Agreement ¶¶ 1-2, at 1. The Plaintiffs counter that their requested injunction
extends to enjoining the Natural American brand name, so the Memorandum of Agreement does not
entirely render moot their request. See Response at 76. They also contend that the Memorandum of
Agreement is subject to an ongoing lawsuit in the United States District Court for the Southern
District of Florida, which, if successful, would invalidate the Memorandum of Agreement. See July
Tr. at 60:3-13 (Wolchansky); id. at 61:3-12 (Wolchansky); Sproule v. United States Food and Drug
Administration, No. 17-80709 (S.D. Fla. 2017)(Rosenberg, J.). At the July Hearing, the Defendants
conceded that, if the pending lawsuit against the FDA is successful, “it would vacate the
memorandum,” July Tr. at 64:3-4 (Biersteker). The Defendants represent, however, that “Santa Fe is
no longer utilizing the phrases ‘Additive Free’ and ‘Natural’ in the NAS cigarette product labels,
labeling, advertising, and promotional materials . . . and Santa Fe is in compliance with the
[Memorandum of] Agreement.” Supp. Brief on FDA Agreement ¶ 6, at 3.
Injunctive relief requests are subject to Article III mootness. See WildEarth Guardians v.
Public Service Co. of Colorado, 690 F.3d at 1190-91; Ex rel. New Mexico State Highway Dept. v.
Goldschmidt, 629 F.2d at 669. A case is rendered moot “when the issues presented are no longer
live or the parties lack a legally cognizable interest in the outcome.” Cty. of L.A. v. Davis, 440 U.S.
at 631 (1979)(quotations omitted). The Tenth Circuit has explained:
Like Article III standing, mootness is oft-cited as a constitutional limitation on
federal court jurisdiction. E.g., Building & Constr. Dep’t v. Rockwell Int’l Corp., 7
F.3d 1487, 1491 (10th Cir. 1993)(“Constitutional mootness doctrine is grounded in
the Article III requirement that federal courts only decide actual, ongoing cases or
controversies). . . . But although issues of mootness often bear resemblance to issues
of standing, their conceptual boundaries are not coterminous. . . . [T]he Supreme
Court has historically recognized what are often called ‘exceptions’ to the general
rule against consideration of moot cases, as where a plaintiff’s status is ‘capable of
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repetition yet evading review,’ S. Pac. Terminal Co. v. Interstate Commerce
Comm’n, 219 U.S. 498 (1911), or where a defendant has ceased the challenged
action but is likely the defendant will ‘return to his old ways’ -- the latter often
referred to as the voluntary cessation exception, United States v. W.T. Grant Co., 345
U.S. 498, 515 (1911).
Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d at 1242. When injunctive relief does not
redress plaintiffs’ particular injuries, the injunctive relief requested is rendered moot. See WildEarth
Guardians v. Public Service Co. of Colorado, 690 F.3d at 1191 (citing United States v. Vera-Flores,
496 F.3d at 1180). Similarly, if the injunction would have no present-day effect, the injunctive relief
requested is also rendered moot. See Utah Animal Rights Coalition v. Salt Lake City Corp., 371
F.3d at 1257 (“The alleged violation took place in 2001, the Olympics have come and gone, and
neither temporary restraining order, preliminary injunction, nor permanent injunction could have any
present-day effect.”).
As already noted, mootness is subject to the voluntary-cessation exception. See Brown v.
Buhman, 822 F.3d at 1166. Under that exception, “voluntary cessation of challenged conduct does
not ordinarily render a case moot because a dismissal for mootness would permit a resumption of the
challenged conduct as soon as the case is dismissed.” Brown v. Buhman, 822 F.3d at 1166. “This
rule is designed to prevent gamesmanship. If voluntary cessation automatically mooted a case, ‘a
defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then
pick up where he left off, repeating this cycle until he achieves his unlawful ends.” Brown v.
Buhman, 822 F.3d at 1166 (quoting Already, LLC v. Nike, Inc., 568 U.S. at 91). Nevertheless, a
defendant’s voluntary cessation may render a case moot if “the defendant carries the formidable
burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be
expected to recur.” Brown v. Buhman, 822 F.3d at 1166 (quoting Already, LLC v. Nike, Inc., 568
U.S. at 91).
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The Memorandum of Agreement would render moot the Plaintiffs’ requested injunctive
relief, except for an injunction on the term Natural in the brand name. See Utah Animal Rights
Coalition v. Salt Lake City Corp., 371 F.3d at 1257. The ongoing litigation challenging the
Memorandum of Agreement’s validity, see Sproule v. United States Food and Drug Administration,
No. 17-80709 (S.D. Fla. 2017)(Rosenberg, J.), casts doubt, however, on the Memorandum of
Agreement’s permanency. Absent that agreement, the Defendants’ promise to remove the terms
is just that -- a promise. As such, the Defendants “carr[y] the formidable burden of showing that it is
absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur,” and the
Court concludes the Defendants have not carried that burden. Brown v. Buhman, 822 F.3d at 1166.
There is no evidence, for example, that, absent the Memorandum of Agreement, it would be
prohibitively expensive for the Defendants to change their labeling or to restart an advertising
campaign. The Court, accordingly, denies the Defendants’ request to dismiss the injunctive relief
requested.
IT IS ORDERED that: (i) the Defendants’ Request for Judicial Notice in Support of Motion
to Dismiss, filed November 18, 2016 (Doc. 71) is granted in part and denied in part; (ii) the
Defendants’ Second Motion for Judicial Notice in Support of The Motion to Dismiss the
Consolidated Amended Complaint, filed February 23, 2017 (Doc. 91) is granted; (iii) the
Defendants’ Third Motion for Judicial Notice in Support of the Motion to Dismiss the Consolidated
Amended Complaint, filed May 30, 2017 (Doc. 109) is granted; and (iv) the requests in the
Defendants’ Motion to Dismiss the Consolidated Amended Complaint and Incorporated
Memorandum of Law, filed February 23, 2017 (Doc. 90) are granted in part and denied in part. The
Court: (i) judicially notices the 2000 FTC Complaint filed against Santa Fe Tobacco, In the Matter of
Santa Fe Natural Tobacco Company, Inc., No. C-3952 Complaint, filed November 18, 2016
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(Doc. 71-1); the Native American Spirit Advertising attached to the FTC Complaint, In the Matter of
Santa Fe Natural Tobacco Company, Inc., No. C-3952, Exhibits A-C, filed November 18, 2016
(Doc. 71-1); the Decision and Order, In the Matter of Santa Fe Natural Tobacco Company, Inc., No.
C-3952, filed November 18, 2016 (Doc. 71-1); FTC Accepts Settlements of Charges that
“Alternative” Cigarette Ads are Deceptive, issued April 27, 2000, filed November 18, 2016 (Doc.
71-1); FTC Accepts Settlement of Charges that Ads for Winston “No Additive” Cigarettes are
deceptive, issued March 3, 1999, filed November 18, 2016 (Doc. 71-1); Assurance of Voluntary
Compliance, (dated March 1, 2010), filed November 18, 2016 (Doc. 71-1); Warning Letter, dated
August 27, 2015, filed November 18, 2016 (Doc. 71-1); Memorandum of Agreement Between The
United States Food and Drug Administration’s (FDA) Center for Tobacco Products (CTP) and RAI
Services Company (RAIS)/Santa Fe Natural Tobacco Company, Inc. (Santa Fe), (dated January 19,
2017), filed February 23, 2017 (Doc. 91-1)(“Memorandum of Agreement”); Request for Informal
Staff Guidance Regarding Santa Fe Natural Tobacco Company’s Consent Order (FTC Dkt. No. C3952) dated May 9, 2017, filed May 30, 2017 (Doc. 109-1); (ii) severs and transfers the Plaintiffs’
claims, which were not originally brought in a North Carolina forum against Reynolds American
Inc., to the Middle District of North Carolina; (iii) dismisses with prejudice California Count I
(CLRA), California Count II (CFAL), California Count III (UCL), Colorado Count I (CCPA),
Florida Count I (FDUTPA), Illinois Count I (ICFA), Illinois Count II (IUDTPA), Massachusetts
Count I (Mass. Gen. Law. 93A), Michigan Count I (MCFA), New Jersey Count I (NJCFA), New
Mexico Count I (NMUPA), New Mexico Count II (NMFAL), New York Count I (N.Y. Gen. Bus.
Law § 349), New York Count II (N.Y. Gen. Bus. Law § 350), North Carolina Count I (N.C. Gen.
Stat. § 75-1.1), Ohio Count I (OCSPA), Ohio Count II (ODTPA), Washington Count I (WCPA) to
the extent that those counts are premised on a theory of deception that a reasonable consumer would
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believe that the terms natural and additive-free suggest that Natural American cigarettes are less
processed than other cigarettes; (iv) dismisses with prejudice Illinois Count I (ICFA) and Illinois
Count II (IDUTPA) to the extent those claims are premised on the theory that a reasonable consumer
would believe that the terms “additive-free” and “natural” in the Defendants’ advertising suggest that
Natural American cigarettes are safer or healthier; (v) dismisses with prejudice Illinois Count II
(IUDTPA) to the extent that it requests injunctive relief; (vi) dismisses Ohio Count I (OSCPA)
without prejudice; (vii) dismisses with prejudice Ohio Count II (ODTPA), New Jersey Count III
(Unjust Enrichment), Ohio Count III (Unjust Enrichment); and (viii) dismisses with prejudice the
Nationwide Count I (Express Warranty) to the extent that it is premised on Florida, Illinois, and New
York law. All other requests for relief from the Defendants’ Motion to Dismiss The Consolidated
Complaint and Incorporated Memorandum of Law, filed February 23, 2017 (Doc. 90) are denied.
________________________________
UNITED STATES DISTRICT JUDGE
Counsel:
Scott P. Schlesinger
Jonathan Gdanski
Schlesinger Law Offices, P.A.
Fort Lauderdale, Florida
Attorneys for Plaintiffs Justin Sproule, Steve Okstad, Michael Anderson, Brooke Balocca,
Elijah Bent, Charlene Blevins, Sam Bowman, Matokie Brim, Terry Cliver, Christos
Christolow, George Coon, Gary Cruse, Margie Harris, Charles Honse, Clinton
Horton, Collin Jass, Christopher Jensen, Shereen Keith, Kelly Keiser, Asher King,
Marilyn Komarinski, Jodi Kumpula, Tom Kurtz, Richard Kusick, Mike Lair, Tracy Lee,
Kathleen Lelli, Robert Litwin, Linda MacDonald-Lewis, Rudolph Miller, Richard
Morelock, Deborah Orrtim Paulson, Richard Peavy, Concetta Schultz, Judy Sell,
Harrison Thomas, Dani Weir, Tom Weir, Kyle Wiebe, and Vicki Wilson
- 244 -
Jeffrey Louis Haberman
Schlesinger Law Offices, P.A.
Fort Lauderdale, Florida
Attorney for Plaintiffs Justin Sproule, Patrick Scott, Victoria Cuebas, Steve Okstad,
Michael Anderson, Brooke Balocca, Elijah Bent, Charlene Blevins, Sam Bowman,
Matokie Brim, Terry Cliver, Christos Christolow, George Coon, Gary Cruse, Margie
Harris, Charles Honse, Clinton Horton, Collin Jass, Christopher Jensen, Shereen
Keith, Kelly Keiser, Asher King, Marilyn Komarinski, Jodi Kumpula, Tom Kurtz,
Richard Kusick, Mike Lair, Tracy Lee, Kathleen Lelli, Robert Litwin, Linda
MacDonald-Lewis, Rudolph Miller, Richard Morelock, Deborah Orrtim Paulson,
Richard Peavy, Concetta Schultz, Judy Sell, Harrison Thomas, Dani Weir, Tom Weir,
Kyle Wiebe, and Vicki Wilson
Randi McGinn
McGinn, Carpenter, Montoya & Love, PA
Albuquerque, New Mexico
Attorney for Plaintiffs Anthony Dunn, Ceyhan Haskal, Michael Robinson, Harry
Vartanyan, Michael Yang, Doug Pyle, Nick Vadis, Theodore Rothman, Patrick Scott,
Russell Brattain, Shannon White, C.M. LeCompte, Danae Grandison, Michael Laboon,
Dave Moyer Victoria Cuebas, Ashley Waldo, Steve Okstad, Michael Anderson, Brooke
Balocca, Elijah Bent, Sam Bowman, Makotie Brim, Terry Cliver, Christolow, George
Coon, Gary Cruse, Margie Harris, Charles Honse, Clinton Hornton, Colin Jass,
Christopher Jensen, Shereen Keith, Kelly Keiser, Asher King, Marilyn Komarinski,
Jodi Kumpula, Tom Kurtz, Richard Kusick, Mike Lair, Tracy Lee, Kathleen Lelli,
Robert Litwin, Linda MacDonald-Lewis, Richard Morelock, Deborah Orrtim Paulson,
Richard Peavy, Concetta Schultz, Judy Sell, Harrison Thomas, Dani Weir, Tom Weir,
Kyle Wiebe, Vicki Wilson, Timothy Ruggiero, Desire Gudmundson, Jacques-Rene
Herbert, Sara Benson, Justin Sproule, Rudolph Miller, Carol Murphy, Francisco
Chavez, Joshua Horne, Albert Lopez, Abigail Emmons, Charlene Blevins, Scott
Johnston, Jason Cole, and Rachel King
Kathleen J. Love
McGinn, Carpenter, Montoya & Love, PA
Albuquerque, New Mexico
Attorney for Plaintiffs Anthony Dunn, Ceyhan Haskal, Michael Robinson, Harry
Vartanyan, Michael Yang, Doug Pyle, Nick Vadis, Theodore Rothman, Patrick Scott,
Russell Brattain, Shannon White, C.M. LeCompte, Danae Grandison, Michael Laboon,
Dave Moyer Victoria Cuebas, Ashley Waldo, Steve Okstad, Michael Anderson, Brooke
Balocca, Elijah Bent, Sam Bowman, Makotie Brim, Terry Cliver, Christolow, George
Coon, Gary Cruse, Margie Harris, Charles Honse, Clinton Hornton, Colin Jass,
Christopher Jensen, Shereen Keith, Kelly Keiser, Asher King, Marilyn Komarinski,
Jodi Kumpula, Tom Kurtz, Richard Kusick, Mike Lair, Tracy Lee, Kathleen Lelli,
- 245 -
Robert Litwin, Linda MacDonald-Lewis, Richard Morelock, Deborah Orrtim Paulson,
Richard Peavy, Concetta Schultz, Judy Sell, Harrison Thomas, Dani Weir, Tom Weir,
Kyle Wiebe, Vicki Wilson, Timothy Ruggiero, Desire Gudmundson, Jacques-Rene
Herbert, Sara Benson, Justin Sproule, Rudolph Miller, Carol Murphy, Francisco
Chavez, Joshua Horne, Albert Lopez, Abigail Emmons, and Charlene Blevins.
Charles J. LaDuca
Cuneo Gilbert & LaDuca, LLP
Washington, DC
--and-Melissa Wolchansky
Charles D Moore
Halunen Law
Minneapolis, Minnesota
--and-Michael Robert Reese
Reese LLP
New York, New York
--and-Nicholas Koluncich
Law Offices of Nicholas Koluncich LLC
Albuquerque, New Mexico
Attorneys for Plaintiff Anthony Dunn
John C. Bienvenu
Bienvenu Law Office
Santa Fe, New Mexico
--and-Mark H Donatelli
Reed C. Bienvenu
Rothstein Donatelli LLP
Santa Fe, New Mexico
--and--
- 246 -
Ronald Marron
Law Offices of Ronald A. Marron
San Diego, California
Attorneys for Plaintiffs Ceyhan Haskal, Michael Robinson, Harry Vartanyan, Michael
Yang, Doug Pyle, and Nick Vadis
Caleb Marker
Zimmerman Reed
Manhattan Beach, California
--and-Nancy Ruth Long
Long Komer & Associates, P.A.
Santa Fe, New Mexico
Attorneys for Plaintiffs Theodore Rothman and C.M. LeCompte
Douglas Gregory Blankinship
Finkelstein Blankinship, Frei-Pearson & Garber, LLP
White Plains, New York
Attorney for Theodore Rothman
Kim Eleazer Richman
Richman Law Group
Brooklyn, New York
Attorney for Theodore Rothman, Danae Grandison, Michael Laboon, and Dave Moyer
Benjamin Michael Lopatin
Eggnatz, Lopatin, & Pascucci, LLP
San Francisco, California
Attorney for Plaintiff Russell Brattain
Daniel L. Warshaw
Alexander R. Safyan
Pearson, Simon & Warshaw, LLP
Sherman Oaks, California
--and--
- 247 -
Erika E Anderson
Law Offices of Erika E. Anderson
Albuquerque, New Mexico
Attorneys for Plaintiff Shannon White
Gretchen Mary Elsner
Elsner Law & Policy, LLC
Santa Fe, New Mexico
Attorney for Plaintiffs Danae Grandison, Michael Laboon, and Dave Moyer
John Allen Yanchunis, Sr.
Scott W. Weinstein
Keith R. Mitnik
Marisa Kendra Glassman
Morgan & Morgan, PA
Fort Myers, Florida
Orlando, Florida
Tampa, Florida
Attorneys for Plaintiff Ashley Waldo
Steven William Teppler
Abbott Law Group, P.A.
Jacksonville, Florida
Attorney for Plaintiff Timothy Ruggiero
John Russell Bart Pate
J.R. Pate, PC - Law Office
St Thomas, Virgin Islands
Attorney for Plaintiff Desire Gudmundson
Matthew David Schultz
Levin Papantonio Thomas P.A.
Pensacola, Florida
Attorney for Plaintiff Scott Johnston
Joel R. Rhine
Rhine Law Firm, P.C.
Wilmington, North Carolina
Attorney for Jason Cole and Rachael King
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Chad C. Messier
Dudley Topper & Feuerzeig
St. Thomas, United States Virgin Islands
--and-Andrew G. Schultz
Rodey Dickason Sloan Akin & Robb, P.A.
Albuquerque, New Mexico
--and-Peter J. Biersteker
David B. Alden
David M. Monde
Paul Courtney Huck, Jr.
Sharyl Reisman
Mark R. Seiden
Charles R. A. Morse
David Craig Kiernan
Michael Fraser Stoer
Jennifer Bunting-Graden
William D Coglianese
Jon Gregory Heintz
Jordan Von Bokern
Joseph R Coburn
Noel J. Francisco
Troy A. Fuhrman
Jones Day
San Francisco, California
Washington, DC
Atlanta, Georgia
Miami, Florida
Tampa Florida
New York, New York
Cleveland, Ohio
Attorneys for the Defendants
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