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In re Herbal Supplements Marketing and Sales Practices Litigation

United States District Court, N.D. Illinois, Eastern Division

May 19, 2017



          AMY J. ST. EVE, District Court Judge

         Defendants Target Corp. and Target Brands, Inc. (collectively, “Target”); Walgreens Boots Alliance, Inc. (“Walgreens”); Wal-Mart Stores, Inc. (“Walmart”), and NBTY, Inc. (“NBTY”) (collectively, “Defendants”) have moved to dismiss and strike Plaintiffs' Second Consolidated Class Action Complaint (“SAC”). (R. 193 (Target's motion); R. 196 (Walgreens, Wal-Mart, and NBTY's motion).) For the following reasons, the Court denies Defendants' motions to strike, and grants in part and denies in part Defendants' motions to dismiss.


         Seventy percent of Americans take an herbal supplement, propelling a multi-billion dollar industry in which Defendants participate. (R. 184, Second Am. Consolidated Class Action Compl., at ¶¶ 1-2.) Individuals take them for their perceived health benefits. (See Id. at ¶ 1.) St. John's Wort, for example, “is often taken to combat depression, and Gingko Biloba is used to improve mental function.” (Id.)

         Walgreens, Target, and Walmart are all large retailers that market herbal supplements, among other items. (Id. at ¶¶ 33-35.) Walgreens sells its line of supplements under the brand “Finest Nutrition, ” Target sells under the brand “up & up, ” and Walmart sells under the brand “Spring Valley.” (Id.) They all contract with third-parties that manufacture and label the supplements for their proprietary brands. (Id. at ¶¶ 67, 91, 133.) NBTY “is one of the largest retailers, manufacturers, and distributors of vitamins, nutritional supplements, and related products in the United States.” (Id. at ¶ 36.) It manufactures herbal supplements and sells them wholesale to Target, Walgreens, and Walmart, among other businesses. (Id. at ¶ 153.) They then sell the NBTY supplements under their proprietary brand names. (Id. at ¶ 155.) Plaintiffs are individuals who purchased certain herbal supplements from Target, Walmart, and/or Walgreens. (Id. at ¶¶ 9-29.)[2]

         Plaintiffs broadly allege that Defendants sell supplements “that do not contain what is listed on their labels” but instead “are packed with cheaper ‘filler' ingredients, or contain substances not identified on the bottles.” (Id. at ¶ 2.) Plaintiffs base this contention in large part-or, as Defendants argue, exclusively-on letters the New York Attorney General (“NYAG”) sent to Target, Walmart, and Walgreens on February 2, 2015. (Id. at ¶¶ 71-77, 96- 103, 137-47.)[3]

         The letter to Target indicated that the NYAG purchased six up & up herbals supplements from three different Target locations in New York state: Ginkgo Biloba, St. John's Wort, Valerian Root, Garlic, Echinacea, and Saw Palmetto. (Id. at ¶ 71.) The NYAG informed Target that it conducted testing on the supplements, which revealed that the Ginkgo Biloba, St. John's Wort, and Valerian Root supplements (the “Affected Target Products”) did not contain the ingredients listed on their labels but instead contained “adulterants and undisclosed substances that were not listed on the labels” like rice, garlic, beans, peas, wild carrot, and dracaena (the genus encompassing a common houseplant). (Id. at ¶¶ 71-73.)

         The NYAG's test results for Walgreens and Walmart were similar with respect to certain supplements. As for Walgreens, the NYAG purchased Finest Nutrition brand Gingko Biloba, St. John's Wort, Ginseng, Garlic, Echinacea, and Saw Palmetto from three Walgreens stores in New York state. (Id. at ¶ 97.) The testing revealed that five of the supplements-Gingko Biloba, St. John's Wort, Ginseng, Garlic, and Echinacea (the “Affected Walgreens Products”)-“did not contain the ingredients they purported to have and were contaminated with other plant material or ingredients not listed on the products' labels.” (Id. at ¶ 97; see Id. at ¶¶ 98-102.) With respect to Walmart, the NYAG purchased Gingko Biloba, St. John's Wort, Ginseng, Garlic, Echinacea, and Saw Palmetto from three Walmart locations in New York state. (Id. at ¶ 137.) The NYAG indicated that none of the samples of Ginkgo Biloba, St. John's Wort, Ginseng, or Echinacea supplements contained those substances, and only 1/15 samples of Garlic and 3/15 samples of Saw Palmetto supplements (the “Affected Walmart Products”)[4] contained those substances. (Id. at ¶¶ 139-44.) NYAG also reported that the supplements contained other plants not disclosed on product labels, like dracaena, wheat, cassava, and rice. (Id.)

         The NYAG reached the conclusions relayed in its letters and press release after conducting DNA barcode testing. (Id. at ¶¶ 161-76.) A DNA molecule consists of two strands-each with “a backbone made of alternating sugar . . . and phosphate groups.” (Id. at ¶ 162.) “Attached to each sugar is one of four bases-adenine (A), cytosine (C), guanine (G), and thymine (T).” (Id.) The two strands are held together by bonds between the bases. (Id.) “DNA barcoding in herbal supplements involve[s] [selecting] a standardized region of a gene in DNA obtained from an herbal supplement, and comparing it to a known database of DNA of plants to find a match.” (Id. at ¶ 168.) The sequence of base pairs in the standardized gene regions “is unique to each plant species.” (Id.) Thus, if the sequence in the herbal supplement sample is the same as the sequence in the database for a particular plant, the supplement contains that plant. (Id. at ¶¶ 168-70.) Plaintiffs allege that “[e]ven if the DNA molecule has been fragmented during the [herbal supplement] manufacturing process, the DNA can be detectable because a fragment as small as 200 base pairs may be enough DNA to allow for the identification of the plant species from which the DNA came.” (Id. at ¶ 167.)

         Plaintiffs claim that “DNA testing in general” is a generally accepted forensic tool. (Id. at ¶ 171.) They also reference a 2013 study from the University of Guelph-which was published in a peer reviewed publication called BMC Medicine-in which researchers used DNA barcoding to test 44 finished herbal products (for 30 different species of herbs) from 12 companies. (Id. at ¶¶ 2, 172-75.) The researchers found that 52% of the tested herbal products did not contain the ingredients they purported to contain, 59% contained species of plants that were not listed on the product labels, and 33% of the herbal products also contained contaminants and/or fillers that were not listed on the product labels. (Id. at ¶ 174.) The researchers concluded that “[w]hat is listed on the label of herbal products is not always what is found within the product.” (Id. at ¶ 172 (alteration in original).) Plaintiffs do not allege, however, that the Guelph study necessarily dealt with the companies or products at issue in this lawsuit.[5]

         Beyond claiming that the Affected Products do not contain their listed ingredients but do contain undisclosed substances, Plaintiffs allege that Target, Walgreens, and Walmart do not verify that the supplements they obtain from third-party vendors like NBTY contain only the ingredients listed on the labels, nor do they require their suppliers to test the supplements using DNA barcoding. (Id. at ¶¶ 67-70, 91-94, 133-36.) Plaintiffs claim that they were “misled and deceived by Target's material misrepresentations and omissions and were damaged and injured as a result” because they would not have purchased the Affected Products had they known the truth, they did not receive the benefit of the price they paid for the Affected Products, and the Affected Products had no value due to the mislabeling. (Id. at ¶¶ 82, 108, 152.) Plaintiffs further allege that NBTY is also responsible for the misrepresentations on the labels because it manufactures the supplements, labels them, and then sells them to Walmart, Walgreens, and Target. (Id. at ¶¶ 153-60.)

         Plaintiffs, on behalf of various classes, enumerate the following causes of action against Defendants: (1) violation of state consumer protection laws based on misrepresentation, (id. at ¶¶ 192-227); (2) breach of express warranties, (id. at ¶¶ 239-60); (3) breach of implied warranties, (id. at ¶¶ 261-315); and (4) unjust enrichment, (id. at ¶¶ 316-327).


         I. Motion to Dismiss Standard

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Id. Put differently, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). In determining the sufficiency of a complaint under the plausibility standard, courts must “accept all well-pleaded facts as true and draw reasonable inferences in [a plaintiff's] favor.” Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016).

         To plead fraud in federal court, Rule 9(b) imposes a higher pleading standard than that required under Rule 8(a)(2). See Camasta, 761 F.3d at 736; Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446-47 (7th Cir. 2011). Specifically, “plaintiffs must plead the ‘who, what, when, where, and how: the first paragraph of any newspaper story' of the alleged fraud.” Rocha v. Rudd, 826 F.3d 905, 911 (7th Cir. 2016) (quoting United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009)). In other words, “[t]he requirement of pleading fraud with particularity includes pleading facts that make the allegation of fraud plausible”; therefore, “[t]he complaint must state ‘the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.'” United States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014); see also Rocha, 826 F.3d at 911. Allegations based on information and belief will not suffice under Rule 9(b) unless “(1) the facts constituting the fraud are not accessible to the plaintiff and (2) the plaintiff provides ‘the grounds for his suspicions.'” Grenadyor, 772 F.3d at 1108 (quoting Pirelli, 631 F.3d at 443); see also United States ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 370 (7th Cir. 2016).

         Rule 9(b)'s heightened standard does not, however, apply to allegations of states of mind. See Fed. R. Civ. P. 9(b) (“Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.”). Instead, Rule 8's standards-as defined in Twombly and Iqbal- govern. See Iqbal, 556 U.S. at 686-87.

         II. Motion to Strike Standard

         Federal Rule of Civil Procedure 12(f) provides that a district court may strike from a pleading “any redundant, immaterial, impertinent, or scandalous material.” Fed.R.Civ.P. 12(f). Motions to strike are usually disfavored. Top Tobacco, L.P. v. Good Times USA, LLC, No.16-cv-4292, 2017 WL 395698, at *2 (N.D. Ill. Jan. 30, 2017) (citing Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989)); Otero v. Dart, No. 12 C 3148, 2012 WL 5077727, at *2 (N.D. Ill. Oct. 18, 2012). Motions to strike are appropriate, however, if they serve to streamline the litigation. See Heller, 883 F.2d at 1294; Top Tobacco, 2017 WL 395698, at *2; Otero, 2012 WL 5077727, at *2, *6 (striking “all references to equitable relief from the Complaint”). Courts may grant a motion to strike where the allegations at issue are “so unrelated to the party's claims as to be devoid of merit and unworthy of any consideration” as well as unduly prejudicial. See Causay v. Wells Fargo Bank, N.A., No. 16-cv-7398, 2016 WL 7188167, at *2 (N.D. Ill.Dec. 12, 2016); Stop Ill. Health Care Fraud, LLC v. Sayeed, No. 12 cv 9306, 2016 WL 4479542, at *3 (N.D. Ill. Aug. 26, 2016) Essex Ins. Co. v. Vill. of Oak Lawn, 14-cv-04572, 2015 WL 1942937, at *5 (N.D. Ill. Apr. 28, 2015). District courts enjoy considerable discretion in resolving a motion to strike. See Delta Consulting, 554 F.3d at 1141; Essex Ins., 2015 WL 1942937, at *5. The moving party carries the burden to show entitlement to its requested relief. See Causay, 2016 WL 7188167, at *2; Otero, 2012 WL 5077727, at *2.


         I. Defendants' Motion to Strike

         Defendants seek to strike all allegations regarding the NYAG's investigation, letters, and press release. (See R. 198, NBTY, Walgreens, & Walmart's Mem. Supp. Mot. Dismiss, 6-8; R. 194, Target's Mem. Supp. Mot. Dismiss, 10-12.) They rely primarily on the Second Circuit's opinion in Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir. 1976). (R. 198 at 7; R. 194 at 10.) In Lipsky, the district court had struck from the plaintiff's complaint references to an SEC complaint against the defendant in another case. Lipsky, 551 F.2d at 892. The SEC's complaint had ultimately resulted in a consent judgment between the SEC and the defendant. Id. at 892-93. The Second Circuit reasoned that the consent judgment was “not the result of an actual adjudication of any of the issues” and therefore could “not be used as evidence in subsequent litigation between that corporation and another party.” Id. at 893; see also Id. at 894 (“The consent decree entered into by the SEC and [the defendant] was the result of private bargaining, and there was no hearing or rulings or any form of decision on the merits by the district court.”). Because the consent judgment could “have no possible bearing” on subsequent litigation between the defendant and another party, “the SEC complaint which preceded the consent judgment [was] also immaterial, for the purposes of Rule 12(f).” Id. at 894. The court added the caveat, however, that “the SEC's opinion of the sufficiency of the [defendant's] various [registration and proxy] statements may be relevant and may be admissible, ” and therefore, while the plaintiff could not reference the SEC's complaint, he could potentially reference other documents or testimony from the SEC. See id.

         Defendants read Lipsky to mean that references to the NYAG's investigation are immaterial under Rule 12(f) because the investigation did not result in an adjudication on the merits. (R. 198 at 7; R. 194 at 10-11.) In support, they cite cases from the Southern District of New York for the proposition that “preliminary steps in litigations and administrative proceedings that did not result in an adjudication on the merits or legal or permissible findings of fact are, as a matter of law, immaterial under Rule 12(f).” (See R. 198 at 7 (quoting In re Merrill Lynch Res. Reports Sec. Litig., 218 F.R.D. 76, 78-79 (S.D.N.Y. 2003)); R. 194 at 10-11 (quoting Merrill Lynch and citing In re CRM Holdings, Ltd. Sec. Litig., No. 10 CIV 00975(RPP), 2013 WL 787970, at *5 (S.D.N.Y. Mar. 4, 2013); Ledford v. Rapid-Am. Corp., No. 86 Civ. 9116 (JFK), 1988 WL 3428, at *1-2 (S.D.N.Y. Jan. 8, 1988); Mitchell v. Bendix Corp., 603 F.Supp. 920, 922 (N.D. Ind. 1985).) Defendants ...

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