Consumer Class Actions Update

On April 21, 2017, the Ninth Circuit held that a district court in the Northern District of California “correctly concluded that California law does not provide for a private cause of action” for “lack of substantiation” claims under California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200, et seq.) and Consumers Legal Remedies Act (CLRA) (Cal. Civ. Code § 1750, et seq.).

Relevant Summary

In Kwan v. SanMedica Int’l, No. 15-15496, D.C. No. 3:14-cv-3287, Plaintiff alleged that SanMedica International falsely represented that its Human Growth Hormone (HGH) supplement provided a 682 percent mean increase in HGH levels. The district court granted SanMedica’s motion to dismiss, reasoning that it was based entirely on allegations that SanMedica’s representations lacked substantiation, for which there is no private cause of action. The district court instructed Plaintiff that if she chose to amend her complaint, she had to allege facts “affirmatively disproving” SanMedica’s representations. In particular, the district court advised Plaintiff that she was required to allege that the supplement had been tested and the representations had been found to be false, that it would be “categorically impossible” to achieve a 682 percent HGH increase by taking SanMedica’s product, or that Plaintiff herself did not experience such an increase when using the product. Because Plaintiff failed to do so in her second amended complaint, the district court dismissed Plaintiff’s case with prejudice.

Relying on the “firmly established law” in the California Court of Appeal’s decision in National Council Against Health Fraud, Inc., v. King Bio Pharmaceuticals, 107 Cal. App. 4th 1336 (2003), the Ninth Circuit affirmed. The court explained,

In the fourteen years since King Bio was decided, courts, including several federal district courts, have cited it to require that private citizens bringing suit under the UCL or the CLRA properly allege proof that plaintiffs sustained injury from relying on marketing statements that were actually false. These courts have precluded private citizens from bringing actions that allege that the challenged advertising language lacked proper scientific substantiation.

 

The court further explained that while the California Supreme Court has not directly addressed King Bio, other California Supreme Court decisions had imposed an “actual reliance” requirement on private plaintiffs in UCL and CLRA actions, which the Ninth Circuit concluded was “consistent with King Bio’s requirement that private plaintiffs . . . [bear] the burden of proving that the marketing claims are false or misleading.”

Plaintiff argued that her second amended complaint in fact alleged false misrepresentations — and not mere lack of substantiation — in at least two ways: (1) she alleged that the “clinically tested” representation falsely implied that the supplement’s benefits were supported by credible scientific proof and (2) the representation regarding the benefits of increased HGH levels falsely implied that SanMedica’s claims were supported by credible scientific proof. Explaining that such allegations were “conclusory and do nothing to support or prove the falsehood” of SanMedica’s representations, the Ninth Circuit rejected Plaintiff’s arguments.

Impact

The Kwan decision provides additional support for defendants as they continue to press courts to enforce the prohibition of “lack of substantiation” claims brought by private plaintiffs under the UCL and CLRA. Moreover, the Ninth Circuit’s decision should prompt district courts to require more at the pleading stage than mere allegations that a defendant’s product claims lack substantiation. This may require plaintiffs’ counsel to incur additional costs earlier in litigation (by, for example, performing testing and retaining experts so they may plausibly allege that a defendant’s representations are false).