Brain Research Labs, LLC (BRL) has successfully resolved the lawsuits relating to its dietary supplement product Procera AVH.  Manatt partners Robert Platt and Bruce Kelson and associate Adrianne Marshack represented BRL and affiliated individuals and entities in California and New Jersey class action litigation, with assistance from partner Benjamin Shatz and counsel Kenneth Friedman.

The principal California case began in May 2009 with the filing of a putative statewide false advertising class action in Marin County Superior Court. The complaint asserted claims under the Unfair Competition Law, False Advertising Law and Consumer Legal Remedies Act, based on allegations that, among other things, Procera was falsely advertised as a “dietary supplement” (as opposed to a “drug”) under applicable regulatory definitions and that BRL failed to warn that the product contained unsafe ingredients.

Just a few weeks later, plaintiff’s class counsel posted a YouTube video and appeared in a local television news report, in which he made various statements to the effect that the product contained dangerous drugs with the potential to cause extensive harm or even death, and invited viewers to join him to “put out of business those that have cheated you.” We advised BRL to file a defamation lawsuit, assisted the company in finding separate counsel for that purpose, and closely monitored the matter. The defamation action, filed in San Francisco Superior Court, later survived class counsel’s inevitable Anti-SLAPP motion to strike, with the court finding that the defamation claims had a strong likelihood of success and also that there was evidence of hatred or ill will toward BRL to warrant a finding of malice.

In early 2010, the parties engaged in mediation and appeared to have agreement on the outlines of a global settlement, but class counsel later rejected the tentative agreement and thereafter made only increasingly unrealistic offers. In the class action, we then moved for and won a “convenience” transfer to Orange County Superior Court. Thereafter, we moved to disqualify class counsel based on the inherent conflicts between class counsel’s personal interests and the interests of the class in light of the pending defamation suit. The court declined to grant the disqualification motion at that time, but we won a crucial stay of the litigation, later extended to over a full year, while that ruling was appealed. Then, in early 2012, we moved for and won dismissal of the class action complaint based on the doctrines of equitable abstention and primary jurisdiction – on the grounds that the dietary supplement “regulatory” issues raised in the complaint should be resolved by the FDA and/or the California Department of Public Health, and not by the court in the context of a private false advertising class action. Over the course of over three years, class counsel obtained essentially no meaningful discovery from our client BRL.

In the meantime, in late 2011, a separate consumer class action regarding the marketing and alleged false advertising of Procera was filed in New Jersey federal court. Shortly thereafter, in January 2012, the California Court of Appeal issued its ruling upholding the trial court’s denial of the Anti-SLAPP motion in the California defamation case. We later reached a nationwide settlement with class counsel in the New Jersey class action, and in March 2012 obtained preliminary approval of the settlement, which among other things, enjoined any other false advertising litigation involving Procera from going forward.

In light of these various developments, class counsel in the California class action (and their liability carrier) finally settled the defamation case, agreeing to pay $3.3 million to BRL and to voluntarily dismiss the California class action. Class counsel’s request for dismissal of the California class action, filed in May 2012, stated that it was based on the injunction we obtained as a result of the settlement in the New Jersey case.

In the remaining New Jersey class action, the federal court granted final approval to the nationwide class action in early August 2012. The 62-page opinion noted that recovery to the class was “modest” yet fair – and even cut the amount of attorney’s fees to New Jersey class counsel.

Why it matters:  Given BRL’s status as a start-up venture with limited funding, this was “bet the company” litigation. The company now survives with a strengthened balance sheet, clean litigation docket, full release of historical claims, prospects for movement of the product into major retail channels, and good possibilities for sale of the company or other strategic transactions.