Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Ill.: Fraud claims against energy drink maker proceed, (Apr 12, 2017)

By Robert B. Barnett Jr., J.D.

A dissatisfied customer’s consumer fraud suit against the seller of a powdered energy drink for allegedly making false claims on the label about the product’s health benefits adequately pleaded fraud with sufficient particularity by alleging that the label contained the misrepresentations and that she relied on those misrepresentations in purchasing the product, the federal district court in Chicago has ruled. Furthermore, the Nutrition Labeling and Education Act (NLEA) did not preempt her state law claims because the state laws she relied on mirrored the federal law and imposed no labeling requirements that were different from or added to the NLEA requirements (Nichols v. Naturmed, Inc., April 11, 2017, Gettleman, R.).

In February 2016, Mary Ann Nichols, an Illinois resident, bought a two-month supply of All Day Energy Greens, a powdered energy drink, for $59.99. The product was sold by Naturmed, Inc. d/b/a Institute for Vibrant Living, an Indiana corporation that advertised, marketed, and shipped the product from its Arizona offices. Nichols bought the product in reliance on labeling that the product "naturally increases energy," "improves digestion," is "rich in antioxidant superfoods," and "promotes acid/alkaline balance." She stated that she was willing to try the product because of its "100% money back guarantee." After becoming dissatisfied with the product, Nichols tried to return it under the money back guarantee, but was unable to obtain authorization to return the product and was not issued a refund.

Nichols filed suit against Naturmed, alleging (1) breach of implied warranty, (2) breach of express warranty, (3) consumer fraud under Illinois law, (4) consumer fraud under Arizona law, and (5) unjust enrichment. The essence of her claims was that the labeling falsely stated that the product affected the structure or function of the human body, a claim that lacked any clinical support. She also contended that the product contained excessive amounts of lead, which Naturmed had known about since 2012. Naturmed filed a motion to dismiss, arguing that (1) federal law preempted her state law claims, (2) the fraud claims were not pleaded with sufficient particularity, (3) the breach of warranty claims should be dismissed because she failed to provide pre-suit notice, and (4) unjust enrichment should be dismissed for the same reasons that the other claims should be dismissed.

Preemption. The Nutrition Labeling and Education Act (NLEA) preempts state law claims that are not identical to the NLEA’s requirements. This preemption provision, the court said, has been interpreted not to preempt state law claims that parallel or mirror the NLEA’s requirements. Because the Illinois and Arizona laws upon which Nichols relied contain requirements that do not differ from or add to the NLEA requirements, the court said, preemption did not apply in this case.

Fraud pleading. Both Illinois and Arizona consumer fraud statutes contain similar requirements: a deceptive act, an intent to rely on that deception, a deception occurring in the course of trade and commerce, and damages. Federal Rule of Civil Procedure Rule 9(b) requires that fraud be pleaded with sufficient particularity to identify the person making the representation; the time, place, and content of the misrepresentation; and the communication method, the court explained.

By pleading that Naturmed made misrepresentations on the label, that the misrepresentations were made to her before she purchased the product, that she relied on those misrepresentations in making her purchase, and that Naturmed intentionally thwarted her efforts to return the product, the court stated, she had met her Rule 9(b) pleading requirements.

Pre-suit notice. Nichols, the court noted, tried to give Naturmed pre-suit notice of the misrepresentations but was actively prevented from doing so by Naturmed. She, therefore, met her pre-suit notification requirement. As for the allegation that the product contained unsafe amounts of lead, pre-suit notice was not required because Naturmed had been on notice of the lead content since 2012. Direct notice is not required when the seller has actual notice. As a result, the court denied the motion to dismiss for lack of pre-suit notice.

Unjust enrichment. The court also denied the motion to dismiss the unjust enrichment claim because it relied on the same arguments made previously for the other claims. Here, the unjust enrichment claim rested on the same improper conduct alleged in the plaintiff’s related fraud claims.

The case is No. 16 C 7356.

Attorneys: Daniel A. Edelman (Edelman, Combs, Latturner & Goodwin LLC) for Mary Ann Nichols. John Michael Riccione (Taft Stettinius & Hollister LLP) for Naturmed, Inc. d/b/a Institute for Vibrant Living.

Companies: Naturmed, Inc.

Cases: StateUnfairTradePractices IllinoisNews