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Are you vulnerable to class action?


Class action lawsuits are getting smarter and more aggressive according to speakers at this year’s Dietary Supplement Legal, Regulatory and Compliance Forum, hosted by the American Conference Institute, in conjunction with the Council for Responsible Nutrition. Plaintiff’s bar and consumer protection groups can target manufacturers through a class action by exploiting regulatory loopholes, seeking financial compensation. While collective action may be justified in some cases, the system can be abused. According to a presentation by Claudia Lewis, partner at Venable LLP and Livia Kiser, partner at King & Spalding, plaintiff’s bar and consumer protection groups conducting class actions are often funded by industry players to use against competitors. In some cases, this may be a form of industry self-regulation, but may also be profit-driven to gain competitive advantage. Therefore, manufacturers should be aware of how vulnerable they may be to a class action lawsuit.

Class action lawsuits often focus on false labeling claims. Examples of this are “natural” claims and unsubstantiated product claims. Because there is no official definition of the term “natural”, companies using the term may be vulnerable if they use “natural” on their labels but have synthetic ingredients in their product. Once, lawsuits were even filed against Nordic Naturals because its brand name contained the word “natural,” even though its products made no “natural” claims. Lawsuits citing unsubstantiated allegations have varying degrees of success for the plaintiff’s bar.

Some courts state that private litigants cannot sue unsubstantiated claims without broader evidence that they are in fact unsubstantiated. However, this is not always consistent. For example, in the recent “Joint Juice” case, a jury awarded $1.49 million in actual damages based on approximately 165,000 units sold during the relevant period, or approximately $9 per drink. . According to a panel of attorneys including Mark Brian Levine, Associate General Counsel, Reckitt Benckiser, Jasmine Wetherell, Attorney, Perkins Cole, and Rohit A. Sabnis, Partner, Keller & Heckerman LLP, this case was unique because it attacked the structure of the product . functional claims around the joint health benefits of glucosamine and chondroitin sulfate. The product doesn’t even make any disease claims. Therefore, even compliant products are vulnerable to class action lawsuits.

While private litigants cannot enforce regulations such as the Food, Drug and Cosmetics Act through class action, there has recently been an increase in cases that indirectly introduce regulations into the law. ‘equation. Although generally unsuccessful, some class actions have been attempted against CBD products and products containing new dietary ingredients that have not been notified to the FDA, claiming they are falsely advertised as dietary supplements. Sometimes plaintiffs can target technical violations, such as when a product manufacturer does not place the DSHEA warning sign on the same sign as a structure-function claim. In the case of CBD or even “natural” claims, defendants have successfully argued that litigation cannot proceed until the FDA issues guidance, but success is not guaranteed.

Part of the reason that class action results may vary is due to the subjective definition of a “reasonable consumer”. Essentially, plaintiffs must demonstrate that a majority of the public would be misled by a company’s “misleading advertising”. How this is demonstrated by a plaintiff or how it may be interpreted by a jury will vary, which is why similar cases can have very different outcomes.

Manufacturers must weigh the potential costs of a settlement with plaintiffs versus legal action. In some cases, it is better to settle. In fact, only about 20% of class action lawsuits end up being filed, and many choose to settle out of court. Sometimes plaintiffs’ claims can be flimsy, warranting legal action, but if unsuccessful, depending on the jurisdiction, the damages can be high. In the “Joint Juice” case, for example, after the verdict, the plaintiffs sought compensation of approximately $140 million in damages. The plaintiffs filed these claims under §§ 349 and 350 of the New York State General Business Law (GBL), which generally prohibit false or misleading advertising. For each violation of §349, there is a statutory damage of $50 and for each violation of §350, plaintiffs have a statutory damage of $500. Thus, for each unit sold in New York State, the statutory damages amount to $140 million (166,249 x $550). A statutory damages hearing has yet to take place, but if granted, it would set an important precedent.