In Re Wellnx Marketing and Sales Practices Litig.

Citations: 673 F. Supp. 2d 43; 2009 U.S. Dist. LEXIS 116156; 2009 WL 4743605Docket: MDL No. 07-md-1861

Court: District Court, D. Massachusetts; December 11, 2009; Federal District Court

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In the case In re WellNx Marketing and Sales Practices Litigation, MDL No. 07-md-1861, the United States District Court for the District of Massachusetts addressed motions to dismiss filed by defendants WellNx Life Sciences, Inc., Swiss Caps USA, Inc., and Robinson Pharma, Inc. The plaintiffs, in multiple civil cases, alleged fraud-based claims related to various weight loss products, including "Slimquick - the Female Fat Burner," "Slimquick, NV - Rapid Weight - Loss Beauty Pill," and "Liquid Hoodia." The defendants contended that the majority of the claims were inadequately pleaded. Oral arguments on these motions took place on June 11, 2009. The court's memorandum and order, issued on December 11, 2009, would determine the viability of the plaintiffs' allegations against the defendants based on the sufficiency of the claims presented.

Litigation involves federal cases in Maryland, Massachusetts, Nevada, and New Jersey initiated by consumers dissatisfied with WellNx products, which they purchased for approximately $25, believing these products would promote weight loss and enhance beauty. Plaintiffs assert that the advertised benefits were misleading, as none experienced weight loss or improved beauty. The claims primarily target the alleged fraudulent marketing of Slimquick and NV, with similar allegations regarding Liquid Hoodia in New Jersey.

WellNx, a Canadian company, is accused of falsely representing product ingredients and fabricating consumer testimonials. A sworn statement from Craig Stevenson, a former marketing director at WellNx, claims the Woodgate brothers knew the products lacked the advertised ingredients. Tests conducted by Dr. Lawrence Walker revealed that Slimquick, NV, and Liquid Hoodia often did not contain green tea or Hoodia, or had less than the labeled amounts. Scott Welch, a former WellNx officer, states that testimonials for Slimquick were entirely fabricated, citing examples of individuals who were misrepresented as successful users.

The Amended Complaints allege that the defendants, including the Woodgates and associated companies, made false statements or omissions with intent to mislead consumers, who relied on this information to their detriment. They also assert that the Manufacturing Defendants failed to include certain ingredients in the products knowingly or negligently. WellNx seeks dismissal of specific claims, while Swiss Caps and RPI are attempting to dismiss all claims against them based on the lack of evidence that any named plaintiff relied on product labels when making purchases. WellNx further argues that the complaints do not adequately allege reliance or causation, essential for fraud claims, and points out that none of the named plaintiffs purchased NV, with only one being linked to Liquid Hoodia. Additionally, WellNx contends that as plaintiffs claim only out-of-pocket damages, their tort claims are barred by the economic loss doctrine.

To survive a motion to dismiss under Rule 12(b)(6), a complaint must demonstrate a "plausible entitlement to relief" as established in *Bell Atlantic Corp. v. Twombly*. While specific factual details are not mandatory, mere labels, conclusions, or formulaic recitations of legal elements are insufficient. Courts evaluate claims contextually, using judicial experience to assess whether well-pleaded facts suggest more than a mere possibility of misconduct. If the facts do not support a claim for relief, the complaint may be dismissed.

In the case involving Swiss Caps, the plaintiff Tisha Cathcart alleges that the company manufactured Liquid Hoodia, which she purchased but claims did not aid in weight loss. Testing revealed the product lacked the advertised ingredient, Hoodia gordonii. Cathcart asserts multiple claims against Swiss Caps, including consumer fraud, common-law fraud, aiding and abetting, civil conspiracy, and negligence, alongside requests for punitive damages and injunctive relief. Swiss Caps has moved to dismiss these claims, arguing that Cathcart has not met the specificity required under Federal Rule of Civil Procedure 9(b) for fraud allegations, particularly lacking elements of reliance, causation, or damage.

Under New Jersey law, common-law fraud requires a material misrepresentation made knowingly, with the intention for the other party to rely on it, resulting in detrimental reliance. For fraud by omission, the plaintiff must demonstrate that the defendant had a duty to disclose material information, which the plaintiff could not easily discover, and that the defendant intentionally withheld it, leading to harm. Additionally, the New Jersey Consumer Fraud Act prohibits material misrepresentations or omissions made to induce reliance, classifying various deceptive practices as unlawful.

The statute mandates proof of three elements: 1) unlawful conduct by the defendant; 2) an ascertainable loss for the plaintiff; and 3) a causal connection between the defendant's unlawful actions and the plaintiff's quantifiable loss. In the case of Liquid Hoodia, Cathcart alleges nine misleading statements by WellNx and the Woodgates, which Swiss Caps argues are not directly attributed to them or any manufacturing defendants, nor is there any claim of their encouragement of these statements. Cathcart also claims Swiss Caps is liable for false labeling, alleging they knowingly failed to include certain ingredients listed on the product's packaging. 

Under Rule 9(b), allegations of fraud must detail the circumstances with particularity, although general assertions about a person's state of mind are acceptable. The Third Circuit has acknowledged the challenge for plaintiffs in obtaining information regarding a defendant's role in fraud without discovery. Swiss Caps contends that Cathcart has not established a causal link between the alleged labeling misrepresentations and her claimed harm (waste of money), while Cathcart argues that the product's singular purpose makes this link apparent, asserting that her sole reason for purchase was weight loss.

Furthermore, New Jersey law generally does not allow recovery for purely economic losses in tort unless accompanied by personal injury or property damage, favoring contract law in such cases. However, New Jersey courts have not definitively ruled on the applicability of the economic loss doctrine to fraud claims. Federal courts in New Jersey typically hold that this doctrine precludes fraud-based claims related to contracts, emphasizing that contract remedies are more appropriate for addressing economic loss claims.

The Third Circuit Court of Appeals has refrained from predicting whether the New Jersey Supreme Court would view the economic loss doctrine as an absolute barrier to fraud claims that overlap with breach of contract claims. The New Jersey Supreme Court has yet to address this issue definitively. In the absence of such a ruling, the court concludes that Cathcart's common-law fraud claims are barred. Additionally, Cathcart's negligence claim, which seeks damages for the improper procurement and testing of ingredients in Slimquick, NV, and Liquid Hoodia, is also barred.

However, Cathcart's claims under the New Jersey Consumer Fraud Act (CFA) are treated differently. The CFA is designed to protect consumers and allows recovery for "ascertainable" economic loss, defined as a loss of money or property due to unlawful practices. The CFA does not require reliance but mandates that plaintiffs show a causal link between the alleged fraudulent conduct and the loss. This causal nexus is adequately pled in Cathcart's Amended Complaints.

Consequently, the court finds that the underlying New Jersey tort claims are barred by the economic loss doctrine, leading to the dismissal of Cathcart's aiding and abetting and civil conspiracy claims. Additionally, punitive damages and injunctive relief claims are dismissed as they are not standalone causes of action under New Jersey law. However, Cathcart's CFA claim against Swiss Caps regarding the labeling and manufacturing of Liquid Hoodia will proceed.

Regarding RPI, the only specific allegation is its manufacture of NV and Liquid Hoodia during certain periods. RPI seeks to dismiss all consumer fraud statute claims and common-law fraud claims, asserting that plaintiffs have failed to establish a causal link between misrepresentations and injuries or to plead specific details concerning fraud-based claims.

No allegations exist in the Amended Complaints that any named plaintiff purchased NV, which is essential for establishing claims related to class action representation. Plaintiffs must demonstrate that their injury is directly linked to a wrong affecting the class, which is a requirement under many state consumer protection laws that allow private actions only if the consumer suffered an injury from the business's deceptive conduct. This prevents individuals who were not harmed from acting as private attorneys general. Article III of the U.S. Constitution restricts federal court jurisdiction to actual cases and controversies, meaning plaintiffs must have standing, demonstrated by personal injury, a causal link to the defendants' alleged misconduct, and the likelihood of redress through a favorable ruling.

Since no named plaintiffs are alleged to have purchased NV, those claims are to be dismissed. Additionally, RPI will also be dismissed from claims involving Slimquick due to a lack of allegations regarding their involvement in its manufacture. Only Cathcart, the New Jersey plaintiff, is noted to have purchased Liquid Hoodia, leading to RPI's dismissal from the Maryland, Massachusetts, and Nevada Amended Complaints concerning that product. RPI's motion to dismiss is allowed for all claims regarding NV and Slimquick, as well as claims under the Nevada Deceptive Trade Practices Act, Massachusetts Consumer Protection Act, and Maryland Consumer Protection Act related to Liquid Hoodia. However, the motion to dismiss the New Jersey CFA claim concerning Liquid Hoodia is denied, while the motion to dismiss New Jersey common-law claims is allowed.

WellNx seeks to dismiss claims regarding state consumer fraud statutes, common-law fraud, civil conspiracy, injunctive relief, punitive damages, and corporate veil-piercing. They argue that deceptive trade practices statutes require a causal link between the alleged deception and the claimed loss. In Massachusetts, while actual reliance on misrepresentation is not necessary for damages under G.L. 93A, plaintiffs must still demonstrate a causal connection and that the loss was foreseeable due to the deception.

Bellwether jurisdictions require plaintiffs to plausibly plead that defendants made representations about the weight-reducing properties of their products, that plaintiffs purchased these products with the expectation of weight loss, and that the products failed to perform as advertised. Under Nevada law, a "deceptive trade practice" occurs when a business makes a factual assertion in advertising without having objective evidence to support it. In New Jersey, plaintiffs must demonstrate an ascertainable loss due to the defendant's actions and establish a causal link. Plaintiffs allege they purchased Slim-Quick and Liquid Hoodia expecting weight loss, based on representations that the products would facilitate "rapid fat loss" and "female fat burn." The packaging and product names, particularly "Slimquick," contributed to their belief in the weight loss claims. WellNx's argument that there was no generic reliance on misrepresentations is countered by plaintiffs' claims that all class members, including named plaintiffs, relied on those statements. 

The economic loss doctrine is acknowledged as a potential barrier to claims against WellNx, as it typically prevents recovery for purely economic losses unless there is personal injury or property damage. However, this doctrine does not apply in Massachusetts and Nevada for intentional torts. Maryland provides an exception for economic losses related to substantial risks of death or injury, which is not relevant here. Plaintiffs assert that WellNx knowingly made false statements and omissions regarding the effectiveness of their products and intentionally replaced key ingredients with cheaper alternatives. As a result, the motion to dismiss the fraud claims against WellNx under Massachusetts and Nevada law is denied.

Plaintiffs' tort claims against WellNx in Maryland and New Jersey are dismissed due to a lack of allegations regarding a dangerous risk of physical harm. Claims related to NV are also dismissed since none of the representative plaintiffs purchased NV. Plaintiffs argue that the court is prematurely assessing the typicality of claims; however, the court emphasizes that standing must be established before discovery. Punitive damages are clarified as not constituting separate causes of action, but rather part of the damages element of a claim. Consequently, the equitable claims in Maryland, Massachusetts, and New Jersey are dismissed. 

WellNx's motion to dismiss claims for deceptive trade practices is denied, except for claims related to NV. Claims for common-law fraud under Massachusetts and Nevada law are upheld, while those under New Jersey and Maryland law are dismissed. The civil conspiracy claim against WellNx is allowed to proceed. 

Swiss Caps' motion to dismiss New Jersey common-law fraud and negligence claims is granted, alongside aiding and abetting and civil conspiracy claims. The punitive damages and injunctive relief claims are also dismissed. The motion to dismiss New Jersey CFA claims is denied. RPI's motion to dismiss all claims involving NV is granted, along with claims under the Nevada Deceptive Trade Practices Act, Massachusetts Consumer Protection Act, and Maryland Consumer Protection Act. However, the New Jersey Liquid Hoodia CFA claim is allowed to proceed, while common-law claims against RPI are dismissed. Overall, the motions to dismiss are granted or denied based on the specific claims and jurisdictions outlined.

Cases were transferred to the District of Massachusetts for consolidated pretrial proceedings on August 31, 2007, as per the Judicial Panel on Multi-district Litigation. The Amended Complaints referenced were filed on July 9, 2008, in multiple cases against NxCare, Inc., with claims primarily sourced from the Massachusetts Amended Complaint. The claims include:

- Count I: Violations of Massachusetts Consumer Fraud Act (Mass. Gen. Laws ch. 93A) against WellNx and other defendants.
- Count II: Fraud against all defendants.
- Count III: Civil Conspiracy against individual defendants.
- Count IV: Breach of Express Warranties against WellNx defendants.
- Count V: Breach of Implied Warranty of Merchantability against WellNx defendants.
- Count VI: Breach of Implied Warranty of Fitness against WellNx defendants.
- Count VII: Aiding and Abetting against manufacturing defendants.
- Count VIII: Civil Conspiracy against all defendants.
- Count IX: Negligence against all defendants.
- Count X: Injunctive Relief against all defendants.

The New Jersey and Nevada Amended Complaints uniquely include claims for piercing the corporate veil. Specific purchases of Slimquick and Liquid Hoodia were made by plaintiffs in Maryland, Massachusetts, Nevada, and New Jersey, with claims asserting that the defendants falsely advertised their products as effective weight-loss solutions without scientific backing. Global Health Technologies, a Canadian holding company owning WellNx, was dismissed from the case due to lack of personal jurisdiction. Fortius Canada, Inc. and Garden State Nutritionals are mentioned as manufacturers of Slimquick and NV during specific periods and are implicated in the complaints across multiple states.

Plaintiffs collectively refer to RPI, Swiss Caps, Garden State, and Fortius as the "manufacturing defendants." Fortius was defaulted on June 8, 2009, while Garden State has not sought dismissal. During the motion hearing, attorney Bailey Kennedy voluntarily dismissed claims for defective product and design, citing that only economic damages were suffered, rendering these claims non-viable. Kennedy acknowledged that prayers for injunctive relief and corporate veil-piercing are not typically pled as separate causes of action, though Nevada law requires such pleading. The New Jersey Amended Complaint does not detail when, where, or by whom ten bottles were purchased.

Cathcart accuses the manufacturing defendants and the WellNx defendants of violating sixteen state consumer protection statutes, including those from New Jersey, Arizona, California, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Missouri, Nevada, New York, North Carolina, Pennsylvania, and Tennessee. The claims for manufacturing defects have been withdrawn; however, conspiracy and aiding-and-abetting claims rely on proving one or more fraud-related claims. Claims of fraud by omission must meet the same Rule 9(b) pleading requirements as affirmative deception claims.

Cathcart alleges that Swiss Caps and other manufacturing defendants falsely represented that Slimquick and NV contained green tea as an active ingredient, despite their knowledge to the contrary, and that the Liquid Hoodia labels misleadingly claimed significant and rapid weight loss without scientific support. NxCare's counsel, Edward Boyle, indicated that many market participants, including Swiss Caps, were misled by a supplier, Stella Labs, regarding the authenticity of the South African Hoodia gordonii.

Plaintiffs allege they were defrauded after purchasing a product that was marketed with misleading claims about its efficacy, specifically regarding weight loss benefits. They assert that the product contained synthetic caffeine, potentially harmful for individuals with heart conditions, although none of the plaintiffs reported such conditions or claimed to have purchased the product. The Third Circuit case, Vanguard, highlights the complexity of fraud claims under New Jersey law concerning frustrated economic expectations. The New Jersey Product Liability Act (PLA) is identified as the exclusive remedy for personal use product-related harm, defining "harm" broadly, including physical damage and emotional distress. Plaintiffs have suffered financial losses due to their purchases of Slimquick, NV, and/or Liquid Hoodia, which failed to deliver promised results. Various claims are outlined across multiple states, including deceptive trade practices, fraud, civil conspiracy, aiding and abetting, injunctive relief, and punitive damages. Notably, claims for manufacturing and design defects have been voluntarily dismissed. Additionally, reliance is a crucial element of the plaintiffs' fraud claims and Maryland's deceptive trade practices statute.

Fraud claims were dismissed due to the plaintiff’s failure to allege reliance on the purported misrepresentation, as established in various cases including Sebago, Inc. v. Beazer E. Inc., which highlighted the necessity of demonstrating actual reliance. Massachusetts courts require fraud claims to plead reasonable reliance with specificity, as seen in Van de Velde v. Coopers & Lybrand. Additionally, in Hartmeyer v. Trane Co., a claim was dismissed because the seller did not prove reliance on the buyer's misrepresentations. Maryland law mandates that plaintiffs must show reasonable or justifiable reliance on false statements for fraud claims to succeed. The Whiting-Turner exception in Maryland allows for consideration of both the nature of the threatened damage and the likelihood of its occurrence, particularly when potential injuries are severe. Furthermore, the court noted that in Nevada, prayers for equitable relief must be distinctly pleaded. Lastly, actions involving multiple agents conspiring for a corporation can result in conspiracy convictions for both the agents and the corporation, as per United States v. Peters, indicating that the corporate veil does not protect agents from liability.