A couple of months ago I wrote a “Hemp/CBD litigation forecast.” (See here.) One topic of that post was the rise in class actions against Hemp-CBD companies and I noted the consumer class action complaint filed against JustCBD in the Southern District of Florida, Case No. 0:19-cv-62067-RS. The gravamen of the complaint is that JustCBD overstated the quantity of CBD contained in its products on numerous occasions and in violation of representations and warranties it made in connection with selling its products. The plaintiff seeks to represent a class of persons defined as all persons in the United States who purchased JustCBD products that contains specific representations about the amount of CBD in the product.  I write today with an update on that case.

On November 18, the defendants filed a joint motion to dismiss the complaint for failure to state a claim. This type of motion – for the unfamiliar – must be filed before a defendant answers the complaint and may be filed against some or all of the claims in the complaint. In simple terms, a motion to dismiss argues: “Court, even if everything alleged in the complaint were true, the plaintiff could not win her lawsuit, so the lawsuit should be dismissed.” More technically, federal courts apply the standards set forth in two Supreme Court cases, Twombly and Iqbal, colloquially referred to by lawyers as Twiqbal.  The guiding principle of these opinions is whether the complaint “plausibly” alleges a claim for relief and courts deciding these motions apply the following principles:

  1. Although the court must accept as true all facts asserted in a pleading, it need not accept as true any legal conclusion set forth in a pleading.
  2. The complaint must set forth facts supporting a plausible claim for relief and not merely a possible claim for relief.
  3. Determining whether a complaint states a plausible claim for relief is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.
  4. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
  5. Mere conclusory allegations do not suffice.

Although a complaint that does not plausibly allege a claim for relief will be dismissed, a plaintiff may be given leave to amend her complaint to cure the pleading deficiency.

The defendants filed a densely packed 27-page motion, let’s go over some of the key arguments that I’ll simplify in some respects for the sake of brevity:

  1. Gaddis alleges he purchased two JustCBD products in November 2018 (Honey Tincture and Ribbons) and apparently tested the CBD content of one of the products, which he alleges was below the amount listed on the label. But Gaddis purports to bring claims on behalf of a class claiming that every product sold by JustCBD (roughly 50 different products) is mislabeled. Defendants argue that Gaddis lacks standing to assert claims for products he did not purchase. This appears a well-founded argument. In Twiqbal terms, the issue is whether the court may reasonably infer from Gaddis’ allegations every JustCBD product (roughly 50) had a lower CBD content? Or is Gaddis limited to bringing claims regarding only the products he purchased? I expect the defendants have the better argument here, which if accepted by the court would significantly constrain the class action and the potential liability of the defendants.
  2. Gaddis seeks to pierce the corporate veils of the various entities he sued, alleging that a parent company “dominates and controls all aspects” the subsidiaries’ operation. But in Florida – as in most jurisdictions – piercing the corporate veil is a drastic measure taken only in rare circumstances. Defendants argue that the mere fact that one company is a corporate parent or affiliate is insufficient to pierce the corporate veil and that Gaddis’ allegations simply do not plausibly plead the circumstances necessary for a court to reasonably infer that the subsidiaries are “mere instrumentalities” of the parent. I believe the defendants have a good argument here as courts are generally loathe to disregard the corporate forms. A ruling in favor of the defendants would further limit the ability of Gaddis and his attorneys’ to reach into the pockets of the defendant corporations.
  3. Gaddis alleges that he and the Class suffered economic injury as a result of the defendants’ conduct. Namely, that they paid a “price premium” for the JustCBD products based on defendants’ express representations about the CBD content of the products. Defendants argue that Gaddis has not plausibly plead a “price premium” injury because he did not plead the specific price he paid, how the price he paid compared to competitors, or how the competitors’ products are comparable to the products he purchase. This argument is persuasive, the deficiency in pleading probably is one that could be corrected. What I mean is that were the court to rule in favor of defendants on this argument, I expect the court would allow Gaddis to try and remedy the deficiency by filing an amended complaint.

Defendants’ motion includes several other arguments including attacks on Gaddis’ claims for (i) violations of New York’s General Business Law §§ 349, 350, (ii) fraud, (iii) violations of the Florida Deceptive and Unfair Trade Practices Act, and (iv) breach of express and implied warranties. I won’t get into those here except to note that fraud claims are subject to a heightened pleading standard under the federal rules and that at least some of the purported deficiencies may be curable.

We will continue tracking this lawsuit and update the blog accordingly. In the meantime, any company involved in selling Hemp-CBD to consumers ought to be working closely with their regulatory attorneys to avoid getting snared by a class action lawsuit. For more reading about advertising and other statements about products see here, here, here, here and here.

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