Stay ADvised: What's New This Week, April 26
In This Issue:
- In Win for Georgia AG, Stem Cell Clinic False Ad Suit Stays in the Peach State
- After Long Build Up, Cobra Sexual Energy Settlement Yields Disappointing Results
- Plaintiff Files Suit to Wash Away Not So "Natural" Hair Care Claims
- FTC and DOJ Crack Open New COVID-19 Consumer Protection Act With Suit Against Chiropractor Selling Vitamin D
In Win for Georgia AG, Stem Cell Clinic False Ad Suit Stays in the Peach State
The road to federal court was not paved with citations to the FDA or to the FTC. In a victory for Georgia's attorney general, a federal judge has remanded back to state court a lawsuit alleging that a stem cell clinic falsely advertised its services, finding that though the stem cell industry is regulated by the Food and Drug Administration (FDA) and subject to Federal Trade Commission (FTC) enforcement, nothing in the complaint warranted removal to federal court.
Ultimately, the court found that the state's claims for false advertising under the Georgia Fair Businesses Practice Act (GFBPA) neither depended on the resolution of a substantial issue of federal law, nor were preempted by federal law. The State of Georgia filed the lawsuit against Elite Integrated Medical and its principal Justin C. Paulk in state court alleging false advertising claims made in violation of GFBPA. Elite and Paulk removed the case to federal court and filed a motion to dismiss. Judge Amy Totenberg ruled on and granted Georgia's motion to remand back to state court.
Elite offered treatments using stem cell products that are not approved by the FDA. The state's complaint alleged that Elite made false and misleading representations about the "regenerative medicine" services it provides using stem cell materials. The industry is regulated by the FDA, and the FDA has approved stem cell products only for certain types of stem cells and for specific disorders.
According to the complaint, Elite falsely marketed the safety and effectiveness of its stem cell treatments by, among other things, citing incorrect studies to provide support for its treatments, and misrepresenting that medical doctors provided the therapies. The company engaged in some of the very same aggressive sales tactics that the FTC has warned marketers against in other contexts, including playing "fast and loose" with the facts and trying to capitalize on the confusion about which types of stem cell treatments are FDA-approved. The complaint alleges that defendant's practices especially targeted vulnerable aging populations.
In seeking to keep the case in federal court, defendant first argued that there was a disputed issue of federal law because the FDA regulates regenerative medicine. But the court found that "without question, there is no federal cause of action at issue here."
Defendant sought to rest its argument on a "'small and special category' of cases" in which federal jurisdiction will lie over a state law claim, but the court agreed with Georgia's attorney general that "because a state court …could find liability without deciding any issue involving the FDCA, the State's cause of action does not depend necessarily on a question of federal law."
Defendants also argued that Georgia's claims were preempted by the Food, Drug and Cosmetics Act (FDCA). Again the court resoundingly rejected that argument for two reasons.
First, defendants did not meet the high bar to qualify for complete preemption by a federal question. Second, Georgia's complaint nowhere alleged allegations of "fraud-on-the-FDA," as defendant "attempt[ed] to recast" the claims. The state's allegations relate to "misrepresentations to the public, not to the FDA," wrote the court.
Preemption can be a tough bar. As the court reminded defendants, a court looks at the pleadings in a complaint to determine whether there is federal jurisdiction, not at defendants' defense. A state's false advertising statutes can sometimes provide a mechanism for plaintiffs to find relief in state court, even when those claims involve products whose manufacturing and labeling are regulated by federal rules.
After Long Build Up, Cobra Sexual Energy Settlement Yields Disappointing Results
After a longstanding battle that took plaintiffs all the way to the U.S. Supreme Court and back on procedural issues, a preliminary settlement has been approved in a false advertising lawsuit against the makers of Cobra Sexual Energy. To settle the allegations, defendants Nutraceutical Corp. and Natural Balance Inc. have agreed to pay $100,000 into a claim fund.
The suit, originally filed in 2013, alleged that the company falsely advertised that dietary supplement Cobra Sexual Energy could significantly enhance sexual performance while offering no scientific backing for those claims. According to the allegations, though the company claimed the product was "scientifically formulated to improve virility," none of the ingredients in Cobra "increase sexual energy," and some ingredients may actually cause adverse reactions.
In addition to the monetary component, defendants will cease using in its advertising two of the many claims "plaintiff found most objectionable and misleading" the—phrase "potency wood" and the word "virility." The remainder of the contested advertising claims—from the claim that Cobra will improve performance to the claim the product will "enhance sexual energy"—may continue to appear on the product packaging and in its advertising.
The monetary award is inclusive of a $10,000 award for lead plaintiff Troy Lambert. Class members will end up with a distribution of $9.61 each.
The settlement comes after a protracted battle that ping-ponged between class-action certification and decertification. The class was certified in 2014 before being decertified in February 2015. Then in 2017 the 9th Circuit reversed that decision. A California class was finally certified in 2020, but not before the case came before the U.S. Supreme Court on the question of when courts can extend appellate deadlines.
Though the settlement motion paints the award in a positive light, it can hardly be encouraging to plaintiffs and class counsel that after eight years of litigation, the result is an award of $100,000 and the cessation of only two of many representations to which plaintiffs objected. Still, as the motion for approval of the settlement points out, this award is likely better than the alternative for plaintiffs, who face a "challenge" to class certification.
Plaintiff Files Suit to Wash Away Not So "Natural" Hair Care Claims
A recent lawsuit filed in the Western District of Pennsylvania aims to take a company to task for what it claims are deceptive "natural" shampoo claims. The proposed class action alleges that Florida-based JM Brands falsely advertises its Purezero brand of hair products as "natural," despite containing a number of synthetic ingredients.
Seeking to capitalize on consumer demand for "natural personal care products," the named plaintiff alleges the company's marketing falsely touts its "clean" ingredients that allow "consumers access to … natural haircare products," at a lower price point. The complaint alleges that a reasonable consumer would not understand that ingredients like phenoxyethanol and ethylhexyl glycerin—two of the many ingredients listed in the company's ingredient disclosure—are synthetic. As plaintiff paints it, these ingredients belie the brand's "Natural Hair Care" claims, used along with multiple images of plants.
The root of plaintiff's case is that JM Brands' claims falsely depict the products as all natural, a claim she apparently seeks to prove by reference to regulatory agency guidance, market research, and expert testimony. The Federal Trade Commission has warned marketers that the use of the word "natural" may be deceptive and they must be able to substantiate the claim "natural" if made, plaintiff alleges.
So, too, the Food and Drug Administration warns that "natural labeling on cosmetic products must be 'truthful and not misleading.'" As to what "natural" means, the USDA has classified natural substances as those that are derived from a natural source, according to the complaint. Finally, plaintiff alleges that market research and surveys align with this view and demonstrate that the reasonable consumer also believes natural means a product free of synthetic ingredients.
This is not the putative plaintiff's first natural rodeo. Together with the same counsel, plaintiff Rachel Binakonsky filed a similar action in 2020 against MAV brands regarding the Canadian company's Renpure products. By agreement of the parties, that case was dismissed and referred at year-end to mediation.
As plaintiff anticipates when she hints of expert testimony and survey evidence in her favor, this action will hinge on the reasonable consumer's perception.
Some courts have found that reasonable consumers having access to a truthful ingredients list cannot claim to be deceived. Here, plaintiff attempts to preempt that thinking by arguing that the reasonable consumer does not know a phenoxyethanol from an ethylhexyl and would rely on the prominent aspects of product packaging to ascertain if something is natural.
FTC and DOJ Crack Open New COVID-19 Consumer Protection Act With Suit Against Chiropractor Selling Vitamin D
St. Louis chiropractor Eric Anthony Nepute probably never intended his claim to fame to be the first person ever to be sued under the brand new COVID-19 Consumer Protection Act (COVID Act). But that is exactly what has occurred, as Nepute and his company Quickwork LLC face a suit filed by the FTC on behalf of the Department of Justice (DOJ) alleging that he made deceptive claims that the company's Vitamin D and Zinc supplement can treat and prevent COVID.
In addition to the COVID Act claims, the FTC also seeks relief against Nepute and his company under the FTC Act. According to the allegations in the complaint, Nepute marketed dietary supplement "Wellness Warrior" as more protection against COVID-19 than the FDA-approved vaccines. Nepute's claims characterized Vitamin D and Zinc as the only "damn thing that's shown the benefits of …. preventing COVID-19," and deliberately spread vaccine misrepresentations to sell his product by claiming vaccines don't stop the spread of the virus.
Defendants marketed their claims, inter alia, via videos posted in social media with claims such as: "How do you protect yourself against COVID-19… Vitamin D," and "Vitamin D3 will prevent [COVID-19] from infecting your body." The complaint alleges that Nepute made these representations despite the lack of any scientific evidence to back them up.
Undeterred, in his ads Nepute repeatedly cited studies in support of these claims, even though the studies he cited were either badly mischaracterized or about different subject matter altogether, said the FTC. Nepute allegedly continued falsely marketing Wellness Warrior utilizing these claims even after receiving a warning letter from the FTC in May 2020.
The COVID Act makes it illegal under the FTC Act to deceptively market any treatment, prevention, or mitigation of COVID-19 or any government benefit related to the virus. Unlike the FTC Act, it authorizes the FTC to seek civil monetary penalties for first-time violations.
Given the vaccine rollout currently taking place, the FTC and DOJ clearly seek to send a message that they will pursue false claims under the COVID Act, including against a marketer appearing to spread unsubstantiated and baseless anti-vaccine information.