The Eleventh Circuit recently analyzed the contours of economic harm in the context of adulterated dietary supplements in Debernardis v. IQ Formulations LLC, 11th Cir. No. 18-11778, 11/14/19. In vacating the District Court's order granting the motion to dismiss and remanding the case for further proceedings, the Eleventh Circuit determined that the plaintiffs adequately alleged that they suffered economic harm by characterizing an adulterated dietary supplement as essentially "worthless."
The plaintiffs purchased supplement products (Synedrex) containing DMBA and brought a class action suit alleging that (1) Synedrex was adulterated because DMBA was a new dietary ingredient (NDI), (2) as adulterated supplements, they had no economic value, and (3) they suffered economic harm by purchasing something that had no value.
The district court granted the defendants' motion to dismiss, concluding that the plaintiffs lacked standing because they failed to allege an injury-in-fact. The district court reasoned that even if the supplements could not be legally sold because of their adulterated status, the plaintiffs still received the "benefit of the bargain" because they failed to allege that Synedrex failed to perform as advertised or caused any adverse health effects, or that they paid a premium for the Synedrex. The Eleventh Circuit disagreed, finding that the purchase of an adulterated product was sufficient to establish an injury-in-fact.
In order to lawfully market a dietary supplement under the U.S. Food and Drug Administration's (FDA's) regulatory framework, the dietary supplement must not be adulterated. FDA considers a supplement adulterated when (1) it presents a significant or unreasonable risk of injury under conditions of use designated by its label, (2) it contains an NDI that is not subject to an exception, (3) the Secretary of Health and Human Services declares it to pose an imminent hazard to public health, or (4) it contains another substance that renders it adulterated.
In the current case, the plaintiffs alleged that they purchased adulterated products because Synedrex contained an NDI (DMBA). However, supplements containing NDIs may nevertheless be lawfully sold if they meet one of two exceptions. First, supplements containing NDIs may be sold if they solely contain "dietary ingredients which have been present in the food supply as an article used for food in a form in which the food has not been chemically altered" prior to October 1994 under 21 U.S.C. § 350b(a)(1). Alternatively, 75 days prior to marketing a product containing an NDI, a manufacturer may submit an NDI Notification to FDA containing information demonstrating that there is a "history of use or other evidence of safety" for the ingredient and that, when used as recommended, the ingredient is reasonably expected to be safe.
Neither party addressed the first exception. Instead, the plaintiffs relied on the absence of an NDI notification to establish that Synedrex was adulterated. Under this theory, as an adulterated (and presumptively unlawful) product, Synedrex could not be sold and thus was worthless.
In agreeing with the plaintiffs' theory, the Eleventh Circuit discussed economic loss at length. The court noted that a person experiences economic loss when they are deprived of the "benefit of the bargain," which is described as "the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered." Under this rule, even a defective product may retain some value unless the defect was prominent enough to render the entire product worthless.
Here, the plaintiffs successfully alleged that adulteration was sufficient to render the entire product worthless, and, had they known Synedrex was adulterated, they would not have purchased the product. In agreeing with the plaintiffs, the court explicitly declared adulterated dietary supplements to have no value because they cannot be lawfully sold.
What does this mean for the dietary supplement industry going forward?
Initially, it is important to note that the Eleventh Circuit's review was limited solely to the issue of standing and the district court's motion to dismiss. As such, the court reviews the pleadings in the light most favorable to the party defending the motion to dismiss, so in this case the court accepted the plaintiffs' allegation that Synedrex was adulterated as sufficient to confer standing but did not actually speak to the substance of the adulteration allegation.
However, this opinion does signal that, if a plaintiff can establish that a supplement is adulterated, a court may consider the adulteration to render the product economically worthless as a supplement. In a concurrence, Judge Sutton caveats this finding by emphasizing that the plaintiffs must still demonstrate that they would not have purchased the products had they known about the adulteration. The concurrence recognizes that it is plausible that some consumers base their purchasing decisions on strict compliance with FDA regulations, but nevertheless such a connection must come to light through the discovery process. Finally, Judge Sutton notes that there are no "guarantees that the…injury that gets [the plaintiffs] in the courthouse door is compensable under their legal theory or, if it is, that a jury will agree that the supplements they bought were worthless as opposed to worth less than the full purchase price."
As this area of law develops, it will be worth keeping an eye on other circuits to see how they analyze this issue.