Antitrust Law Daily Wrap Up, ADVERTISING—9th Cir.: Packaging for “Lazy Cakes” relaxation product not deceptive, (Nov 19, 2013)

By John W. Arden, J.D., LL.M.

Dismissal of a class action—alleging that HBB, LLC deceptively marketed its “Lazy Cakes” relaxation product in violation of the California False Advertising Law, Unfair Competition Law, and Consumers Legal Remedies Act—was upheld by the U.S. Court of Appeals in San Francisco (Cheramie v. HBB, LLC, November 18, 2013, Per Curiam). However, the appeals court reversed and remanded the district court’s denial of a request to amend the complaint.

The Ninth Circuit held that the plaintiff could not demonstrate that a reasonable consumer “was likely to be deceived” by Lazy Cakes’ packaging, which described the product as a relaxation agent, disclosed the presence and quantity of melatonin in each serving, and warned consumers about the risk of drowsiness from the product.

Lee Cheramie brought a complaint, individually and on behalf of others, alleging that HBB failed to inform consumers about the serious side effects stemming from the excessive amount of melatonin in “Lazy Cakes” and claiming that he was misled into buying an unsafe product that he otherwise would not have bought, causing him economic damage in violation of California consumer protection statutes.

The federal district court in Los Angeles, on January 5, 2012, dismissed the complaint in a summary order and denied Cheramie’s request for leave to amend without any explanation.

On appeal, the Ninth Circuit affirmed the dismissal of the California statutory and common law fraud and fraudulent concealment claims. However, it reversed and remanded the denial of leave to amend, concluding that in the absence of an explanation, “it is not otherwise apparent to this court that amendment would be futile.”

The Ninth Circuit held that Cheramie’s statutory claims were foreclosed because the complaint “makes it impossible for him to demonstrate that a reasonable consumer was ‘likely to be deceived’ by the Lazy Cakes product in the manner alleged.” Not only did the packaging provide information and a warning about the risk of drowsiness, but the result of Cheramie’s research regarding the safety and side effects of melatonin consumption and the proper dosage was inconsistent and inconclusive. Under the facts alleged, Cheramie’s statutory claims were properly dismissed.

Cheramie also failed to adequately plead the necessary elements of misrepresentation and fraudulent nondisclosure, the appeals court found. With regard to a negligent misrepresentation claim, Cheramie failed to allege any affirmative representations by HBB. The unjust enrichment count likewise failed to state a claim under California law.

On remand, Cheramie should be given an opportunity to file an amended complaint, “for it may be possible for him to allege facts sufficient to state a claim for relief under California law that would survive a motion to dismiss.”

In a concurring opinion, Judge Kleinfeld agreed with the result of the majority’s opinion, but noted that Cheramie may be able to plead that HBB “sold a sleep aid while falsely marketing it as a relaxation aid.” That might be a good claim under California consumer protection statutes, he contended.

The case is No. 12-55148.

Attorneys: Benjamin Michael Lopatin (The Law Offices of Howard W. Rubinstein) for Lee Cheramie. Loys Augustus Jordan, III (McDonald Kuhn, PLLC) for HBB, LLC.

Companies: HBB, LLC

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