United States District Court, D. New Mexico
IN RE SANTA FE NATURAL TOBACCO COMPANY MARKETING & SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION
P. Schlesinger Jonathan Gdanski Schlesinger Law Offices, PA.
Fort Lauderdale, Florida Attorneys for Plaintiffs Justin
Sproule, Steve Okstad, Michael Anderson, Brooke Balocca,
Elijah Bent, Charlene Blevins, Sam Bowman, Matokie Brim,
Terry Cliver, Christos Christolow, George Coon, Gary Cruse,
Margie Harris, Charles Honse, Clinton Horton, Collin Jass,
Christopher Jensen, Shereen Keith, Kelly Keiser, Asher King,
Marilyn Komarinski, Jodi Kumpula, Tom Kurtz, Richard Kusick,
Mike Lair, Tracy Lee, Kathleen Lelli, Robert Litwin, Linda
MacDonald-Lewis, Rudolph Miller, Richard Morelock, Deborah
Orrtim Paulson, Richard Peavy, Concetta Schultz, Judy Sell,
Harrison Thomas, Dani Weir, Tom Weir, Kyle Wiebe, and Vicki
Jeffrey Louis Haberman Schlesinger Law Offices, P.A. Fort
Lauderdale, Florida Attorney for Plaintiffs Justin Sproule,
Patrick Scott, Victoria Cuebas, Steve Okstad, Michael
Anderson, Brooke Balocca, Elijah Bent, Charlene Blevins, Sam
Bowman, Matokie Brim, Terry Cliver, Christos Christolow,
George Coon, Gary Cruse, Margie Harris, Charles Honse,
Clinton Horton, Collin Jass, Christopher Jensen, Shereen
Keith, Kelly Keiser, Asher King, Marilyn Komarinski, Jodi
Kumpula, Tom Kurtz, Richard Kusick, Mike Lair, Tracy Lee,
Kathleen Lelli, Robert Litwin, Linda MacDonald-Lewis, Rudolph
Miller, Richard Morelock, Deborah Orrtim Paulson, Richard
Peavy, Concetta Schultz, Judy Sell, Harrison Thomas, Dani
Weir, Tom Weir, Kyle Wiebe, and Vicki Wilson
McGinn McGinn, Carpenter, Montoya & Love, PA Albuquerque,
New Mexico Attorney for Plaintiffs Anthony Dunn, Ceyhan
Haskal, Michael Robinson, Harry Vartanyan, Michael Yang, Doug
Pyle, Nick Vadis, Theodore Rothman, Patrick Scott, Russell
Brattain, Shannon White, C.M. LeCompte, Danae Grandison,
Michael Laboon, Dave Moyer Victoria Cuebas, Ashley Waldo,
Steve Okstad, Michael Anderson, Brooke Balocca, Elijah Bent,
Sam Bowman, Makotie Brim, Terry Cliver, Christolow, George
Coon, Gary Cruse, Margie Harris, Charles Honse, Clinton
Hornton, Colin Jass, Christopher Jensen, Shereen Keith, Kelly
Keiser, Asher King, Marilyn Komarinski, Jodi Kumpula, Tom
Kurtz, Richard Kusick, Mike Lair, Tracy Lee, Kathleen Lelli,
Robert Litwin, Linda MacDonald-Lewis, Richard Morelock,
Deborah Orrtim Paulson, Richard Peavy, Concetta Schultz, Judy
Sell, Harrison Thomas, Dani Weir, Tom Weir, Kyle Wiebe, Vicki
Wilson, Timothy Ruggiero, Desire Gudmundson, Jacques-Rene
Herbert, Sara Benson, Justin Sproule, Rudolph Miller, Carol
Murphy, Francisco Chavez, Joshua Horne, Albert Lopez, Abigail
Emmons, Charlene Blevins, Scott Johnston, Jason Cole, and
Kathleen J. Love McGinn, Carpenter, Montoya & Love, PA
Albuquerque, New Mexico Attorney for Plaintiffs Anthony Dunn,
Ceyhan Haskal, Michael Robinson, Harry Vartanyan, Michael
Yang, Doug Pyle, Nick Vadis, Theodore Rothman, Patrick Scott,
Russell Brattain, Shannon White, C.M. LeCompte, Danae
Grandison, Michael Laboon, Dave Moyer Victoria Cuebas, Ashley
Waldo, Steve Okstad, Michael Anderson, Brooke Balocca, Elijah
Bent, Sam Bowman, Makotie Brim, Terry Cliver, Christolow,
George Coon, Gary Cruse, Margie Harris, Charles Honse,
Clinton Hornton, Colin Jass, Christopher Jensen, Shereen
Keith, Kelly Keiser, Asher King, Marilyn Komarinski, Jodi
Kumpula, Tom Kurtz, Richard Kusick, Mike Lair, Tracy Lee,
Kathleen Lelli, Robert Litwin, Linda MacDonald-Lewis, Richard
Morelock, Deborah Orrtim Paulson, Richard Peavy, Concetta
Schultz, Judy Sell, Harrison Thomas, Dani Weir, Tom Weir,
Kyle Wiebe, Vicki Wilson, Timothy Ruggiero, Desire
Gudmundson, Jacques-Rene Herbert, Sara Benson, Justin
Sproule, Rudolph Miller, Carol Murphy, Francisco Chavez,
Joshua Horne, Albert Lopez, Abigail Emmons, and Charlene
Charles J. LaDuca Cuneo Gilbert & LaDuca, LLP Washington,
DC and Melissa Wolchansky Charles D Moore Halunen Law
Minneapolis, Minnesota and Michael Robert Reese Reese LLP New
York, New York and Nicholas Koluncich Law Offices of Nicholas
Koluncich LLC Albuquerque, New Mexico Attorneys for Plaintiff
C. Bienvenu Bienvenu Law Office Santa Fe, New Mexico and Mark
H Donatelli Reed C. Bienvenu Rothstein Donatelli LLP Santa
Fe, New Mexico and Ronald Marron Law Offices of Ronald A.
Marron San Diego, California Attorneys for Plaintiffs Ceyhan
Haskal, Michael Robinson, Harry Vartanyan, Michael Yang, Doug
Pyle, and Nick Vadis
Marker Zimmerman Reed Manhattan Beach, California and Nancy
Ruth Long Long Komer & Associates, P.A. Santa Fe, New
Mexico Attorneys for Plaintiffs Theodore Rothman and C.M.
Douglas Gregory Blankinship Finkelstein Blankinship,
Frei-Pearson & Garber, LLP White Plains, New York
Attorney for Theodore Rothman Kim Eleazer Richman Richman Law
Group Brooklyn, New York Attorney for Theodore Rothman, Danae
Grandison, Michael Laboon, and Dave Moyer
Benjamin Michael Lopatin Eggnatz, Lopatin, & Pascucci,
LLP San Francisco, California Attorney for Plaintiff Russell
Brattain Daniel L. Warshaw Alexander R. Safyan Pearson, Simon
& Warshaw, LLP Sherman Oaks, California and Erika E
Anderson Law Offices of Erika E. Anderson Albuquerque, New
Mexico Attorneys for Plaintiff Shannon White
Gretchen Mary Elsner Elsner Law & Policy, LLC Santa Fe,
New Mexico Attorney for Plaintiffs Danae Grandison, Michael
Laboon, and Dave Moyer
Allen Yanchunis, Sr. Scott W. Weinstein Keith R. Mitnik
Marisa Kendra Glassman Morgan & Morgan, PA Fort Myers,
Florida Orlando, Florida Tampa, Florida Attorneys for
Plaintiff Ashley Waldo
William Teppler Abbott Law Group, P.A. Jacksonville, Florida
Attorney for Plaintiff Timothy Ruggiero
Russell Bart Pate J.R. Pate, PC - Law Office St Thomas,
Virgin Islands Attorney for Plaintiff Desire Gudmundson
Matthew David Schultz Levin Papantonio Thomas P.A. Pensacola,
Florida Attorney for Plaintiff Scott Johnston
R. Rhine Rhine Law Firm, P.C. Wilmington, North Carolina
Attorney for Jason Cole and Rachael King
C. Messier Dudley Topper & Feuerzeig St. Thomas, United
States Virgin Islands and Andrew G. Schultz Rodey Dickason
Sloan Akin & Robb, P.A. Albuquerque, New Mexico and Peter
J. Biersteker David B. Alden David M. Monde Paul Courtney
Huck, Jr. Sharyl Reisman Mark R. Seiden Charles R. A. Morse
David Craig Kiernan Michael Fraser Stoer Jennifer
Bunting-Graden William D Coglianese Jon Gregory Heintz Jordan
Von Bokern Joseph R Coburn Noel J. Francisco Troy A. Fuhrman
Jones Day San Francisco, California Washington, DC Atlanta,
Georgia Miami, Florida Tampa Florida New York, New York
Cleveland, Ohio Attorneys for the Defendants
MEMORANDUM OPINION AND ORDER
MATTER comes before the Court on: (i) the Defendants'
Request for Judicial Notice in Support of Motion to Dismiss,
filed November 18, 2016 (Doc. 71)(“First JN
Motion”); (ii) Defendants' Second Motion for
Judicial Notice in Support of the Motion to Dismiss the
Consolidated Amended Complaint, filed February 23, 2017 (Doc.
91)(“Second JN Motion”); (iii) Defendants'
Third Motion for Judicial Notice in Support of the Motion to
Dismiss the Consolidated Amended Complaint, filed May 30,
2017 (Doc. 109)(“Third JN Motion”); and (iv) the
Defendants' Motion to Dismiss the Consolidated Amended
Complaint and Incorporated Memorandum of Law, filed February
23, 2017 (Doc. 90)(“MTD”). The Court held
hearings on June 16, 2017 and July 20, 2017. The primary
issues are: (i) whether the Court may consider the items
presented in the First JN Motion, the Second JN Motion, and
the Third JN Motion without converting the MTD into one for
summary judgment; (ii) whether the Court may exercise
personal jurisdiction over Reynolds American, Inc. for claims
that were not brought in a North Carolina forum; (iii)
whether the Federal Trade Commission's Decision and
Order, In re Santa Fe Nat. Tobacco Co., No. C-3952
(FTC June 12, 2000), filed November 18, 2016 (Doc.
71)(“Consent Order”), requiring Defendant Santa
Fe Natural Tobacco Company, Inc. to use a disclosure that
“No additives in our tobacco does NOT
mean a safer cigarette” impliedly preempts the
Plaintiffs' claims to the extent that the
Defendants' advertising misled the Plaintiffs into
believing that Natural American cigarettes are safer or
healthier than other cigarettes; (iv) whether “natural,
” “additive-free, ” and
“substantially similar terms” mislead a consumer
into believing: (a) that Natural American cigarettes are
safer or healthier than other cigarettes, (b) that Natural
American's menthol cigarettes do not include any
additives; or (c) that Natural American cigarettes undergo
fewer engineering processes than other cigarettes; (v)
whether the Defendants' use of those descriptors is
protected commercial speech under the First Amendment to the
Constitution of the United States of America; (vi) whether
state law safe harbors shield the Defendants from liability;
(vii) whether the Plaintiffs' unjust-enrichment claims
fail, because: (a) the descriptors did not deceive consumers,
so there is no injustice for equity to correct; (b) the
Plaintiffs have an adequate legal remedy under the various
state consumer statutes; or (c) state specific law otherwise
bars them; (viii) whether the Plaintiffs'
breach-of-express-warranty claims are barred, because: (a)
the FDA-mandated disclosure and the menthol ingredient modify
the warranty such that there is no breach; (b) the
Plaintiffs' Consolidated Complaint, filed January 12,
2017 (Doc. 82)(“Amended Complaint”) does not
serve as the requisite pre-litigation notice under
California, Florida, Illinois, New Mexico, New York, and
North Carolina law; and (c) the Plaintiffs failed to allege
privity of contract with the Defendants as required by
Florida, Illinois, and New York law; and (ix) whether the
Memorandum of Agreement Between the United States Food and
Drug Administration's (FDA) Center for Tobacco Products
(CTP) and RAI Services Company (RAIS)/Santa Fe Natural
Tobacco Company, Inc. (Santa Fe), dated January 19, 2017,
filed February 23, 2017 (Doc. 91-1)(“Memorandum of
Agreement), in which the Defendants agree to remove the
descriptors from its packaging and labeling, except for the
term natural in its brand name, renders the Plaintiffs'
request for injunctive relief moot.
Court concludes that: (i) the Court may consider all but one
of the documents the Defendants submit without converting the
MTD into one for summary judgment, because the documents are
incorporated in the Amended Complaint by reference, or they
are government documents publically available and capable of
ready and accurate determination; (ii) the Court lacks
personal jurisdiction over Reynolds American, as to the
claims filed outside of North Carolina; (iii) the Consent
Order does not preempt the Plaintiffs' claims, because
(a) a consent order is not a “law” under the
Supremacy Clause, (b) the Consent Order -- as an agreement
not to enforce a federal statute -- does not permit conduct;
(c) the Consent Order only binds the parties to it, so does
not bind all of the Defendants; and (d) the Consent Order
covers only the Defendants' advertising, so cannot
preempt the Plaintiffs' claims targeting the
Defendants' labeling; (iv) the descriptors
“natural, ” “organic, ” and
“additive-free” would mislead a reasonable
consumer into believing that: (a) Natural American Cigarettes
are healthier or safer than other cigarettes, because decades
of marketing have equated those terms with healthy products;
and (b) Natural American menthol cigarettes have no
additives, because menthol is a substance that a reasonable
consumer would not know much about; (v) the First Amendment
does not protect the Defendants' use of the descriptors
at issue, because the state action doctrine precludes a First
Amendment defense to the claims premised on mutual assent,
and the government has a substantial interest in regulating
deceptive commercial speech regarding tobacco products; (vi)
the state-law safe harbors do not preclude relief, except in
Illinois, because the Consent Order does not permit conduct,
and the Ohio consumer protection claims are barred for
state-specific reasons; (vii) Rule 8 allows pleading in the
alternative, but New Jersey and Ohio law do not permit the
Plaintiffs' unjust-enrichment claims, because the
Plaintiffs cannot allege a remuneration nor can they allege
that they conferred a direct benefit on the Defendants;
(viii) Florida, Illinois, and New York law preclude the
Plaintiffs' express warranty claims, because the
Plaintiffs Amended Complaint cannot serve as the requisite
pre-litigation notice, and are independently defective under
Florida and Illinois law, because there is no privity between
the Plaintiffs and the Defendants; and (ix) the
Plaintiffs' request for injunctive relief is not rendered
moot, because the Memorandum of Agreement is subject to a
lawsuit that might invalidate it. The Court therefore grants
the MTD in part and denies it in part.
Court takes the facts from the Amended Complaint. As the
Court must, it accepts all factual allegations in the Amended
Complaint as true for the purposes of a motion to dismiss.
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Court may also consider facts judicially noticed on a
motion to dismiss without converting the motion into one for
summary judgment. See Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 322 (2007)(“[C]ourts must
consider the complaint in its entirety, as well as . . .
matters of which a court may take judicial notice.”);
S.E.C. v. Goldstone, 952 F.Supp.2d 1060, 1191
(D.N.M. 2013)(Browning, J.). The Court recites facts from the
documents included in the First JN Motion, the Second JN
Motion, and the Third JN Motion to the extent that the Court
concludes that it can consider those documents. See
infra § I (“The Court concludes that it may
consider all of the documents, which the Defendants submit,
except the FTC Letter, without converting the MTD into one
for summary judgment.”).
Fe Tobacco is a New Mexico corporation that sells Natural
American Spirit cigarettes and uniformly advertises them as
“Natural” and “100% Additive Free.”
Amended Complaint ¶¶ 1, 24, 40, at 1, 12, 15. Those
same descriptors appear on Natural American cigarettes'
packaging. Amended Complaint ¶ 4, at 2. The twelve named
Plaintiffs believed that, based on those terms and others,
Natural American cigarettes were “safer and
healthier” than other cigarettes. Amended Complaint
¶¶ 12-23, at 4-11. Because of that belief, the
Plaintiffs purchased Natural American cigarettes at a premium
over other cigarettes. See Amended Complaint
¶¶ 11-23, at 3-11.
American -- Santa Fe Tobacco's parent corporation -- is
heavily involved in Natural American cigarette advertising,
and approves “all decisions” that Santa Fe
Tobacco makes “with respect to the marketing, design,
and composition.” Amended Complaint ¶ 28, at 12.
Reynolds American actively monitors the publications in which
Natural American cigarettes are advertised. See
Amended Complaint ¶ 28, at 12-13. Santa Fe Tobacco's
and Reynolds American's assets are identical, and
Reynolds American “essentially controls” Santa Fe
Tobacco's business initiatives, capital expenditures, and
financial operations. Amended Complaint ¶ 35, at 13-14.
American advertisements from 2013 through 2015 include images
of water and plants, along with statements like: “When
you work with the best materials, you don't need to add
anything else. That's why we use only tobacco and water.
We stick with premium quality, whole leaf natural tobacco
that's 100% additive-free for a very simple reason --
it's all we need.” Tobacco & Water
Advertisement at 113-114, filed November 18, 2016 (Doc.
71-1)(“Tobacco & Water Advertisement”).
See Complaint ¶ 43, at 17-21. Advertisements
from that period also state in large bold writing,
“100% ADDITIVE-FREE NATURAL TOBACCO,
” and advertisements include, in smaller writing,
“No additives in our tobacco does NOT
mean a safer cigarette.” Tobacco and Water
Advertisement (all caps, bold, and emphasis in original);
Complaint ¶ 43, at 17-21(all caps, bold, and emphasis in
original). In 2015, the Defendants launched a nationwide
advertising campaign and targeted Sports Illustrated, Time,
Field and Stream, Southern Living, Architectural Digest,
Vanity Fair, and U.S. Weekly magazines. See Amended
Complaint ¶ 44, at 21. Regarding that advertising
campaign, a spokesman for Santa Fe Tobacco explained:
“The aim is to drive brand awareness, highlight Natural
American Spirit's 100-percent additive-free natural
tobacco proposition.” Amended Complaint ¶ 45, at
American cigarettes are the most expensive major brand of
cigarette. See Complaint ¶ 88, at 36. Reynolds
American explains that the higher price stems from “its
use of all natural, additive-free tobacco.” Complaint
¶ 89, at 36 (citing Reynolds American, Inc. Form 10-Q
United States Securities and Exchange Commission Filing for
the Quarterly Period Ended March 31, 2016, available at
(last visited Oct. 28, 2017)). Despite their higher price,
Natural American cigarette sales increased eighty-six percent
from 2009 through 2014, while cigarette sales in the United
States of America declined overall by seventeen percent.
See Amended Complaint ¶ 45, at 22. Its market
share during a similar period “more than
doubled.” Amended Complaint ¶ 45, at 22. Between
2014 and 2015 alone, Natural American cigarette sales
increased by 21.4%. See Amended Complaint ¶ 45,
Plaintiffs cite numerous studies regarding the popularity and
consumer perceptions of cigarettes branded as
“natural.” Amended Complaint ¶¶ 50-54,
at 23-27. On August 27, 2015, the Food and Drug
Administration (“FDA”) sent a Warning Letter,
filed November 18, 2016 (Doc. 71-1)(Ex. 8)(“Warning
Letter”) to Santa Fe Tobacco asserting that some of the
Defendants' cigarette labeling practices
“explicitly and/or implicitly” represent that
Natural American cigarettes do not contain certain materials,
so they represent that Natural American cigarettes pose less
of a risk than other tobacco products. Amended Complaint
¶ 58, at 28-29 (quoting Warning Letter at 2). Santa Fe
Tobacco previously entered into a Consent Order with the FTC
regarding its advertising practices, because the FTC had
concerns that the Defendants' advertising mislead
consumers into believing that “Additive-Free” or
“Chemical-Free” cigarettes are safer or less
harmful than other tobacco products. Consent Order at 1-10
[on CM/ECF at 10-19]. The Consent Order requires that,
“beginning no later than (30) days after the date of
service of this order, ” Santa Fe Tobacco's
advertisements must display the warning: “No additives
in our tobacco does NOT mean a safer cigarette.”
Consent Order, at 4 [at 13 on CM/ECF]. Among other
requirements, this statement must be “[i]n the same
style and type size as that required for health warnings for
tobacco cigarettes.” Consent Order at 3 [at 12 on
CM/ECF]. A later “Assurance of Voluntary
Compliance” stipulates that, effective March 1, 2010,
all advertisements found in either “display or
distribution” of any Santa Fe Tobacco cigarette made
with organic tobacco should display the statement
“Organic tobacco does NOT mean a safer
cigarette.” Assurance of Voluntary Compliance at 5-6
[on CM/ECF at 33-34], (dated March 1, 2010), filed November
18, 2016 (Doc. 71-1)(ex. F)(“Voluntary Compliance
the Plaintiffs nor the Defendants allege that Natural
American cigarettes are in any way safer than other
cigarettes. See Amended Complaint ¶ 59, at 29.
One scientific study, according to the Plaintiffs, found that
Natural American blue box cigarettes contain the highest
level of polycyclic aromatic hydrocarbons of fifty United
States cigarette brands tested. See Amended
Complaint ¶ 61, at 29 (citing An T. Vu et al.,
Polycyclic Aromatic Hydrocarbons in the Mainstream Smoke
of Popular U.S. Cigarettes, National Center for
Biotechnological Information (July 30, 2015) available at
Also according to the Plaintiffs, the Centers for Disease
Control and Prevention found that Natural American cigarettes
contain higher concentrations of both cadmium and mercury
than the other fifty varieties of United States cigarettes
tested. See Amended Complaint ¶ 62,
at 30 (citing Mark R. Fresquez, R. Steven Pappas, and
Clifford H. Watson, Establishment of Toxic Metal
Reference Range in Tobacco from U.S. Cigarettes, J.
Analytical Toxicology, 37(5) 298-304 (2013)). Another study
evaluated the levels of “free-base” nicotine in
United States cigarettes, and the Plaintiffs allege that it
determined that Natural American cigarettes has a higher
nicotine concentration than Camel, Marlboro, and
Winston-brand cigarettes. Amended Complaint ¶ 66, at 31
(citing Pankow, J., Barsanti, K., & Peyton, D.,
Fraction of Free-Base Nicotine in Fresh Smoke Particulate
Matter from the Eclipse Cigarette by 1H NMR
Spectroscopy, Chem. Res. in Toxicology 16(1): 23-27
labeled as “additive free, ” the Defendants add
menthol in certain varieties of Natural American cigarettes.
See Amended Complaint ¶ 68, at 31. Natural
American cigarettes are also “flue-cured, ”
meaning that the Defendants process the tobacco with heat to
secure the sugars, which synthetically lowers the cigarette
smoke's pH and makes it easier to inhale. Amended
Complaint ¶ 72, at 32. The tobacco in the
Defendants' cigarettes is artificially blended and
modified, much like other cigarettes in the industry.
See Amended Complaint ¶¶ 73-74, at 33.
Despite these alterations to the tobacco product, the Natural
American cigarettes are labeled “Natural.”
Amended Complaint ¶¶ 74-76, at 33.
Plaintiffs brought thirteen separate actions in eight federal
district courts, alleging similar liability theories. See
In re Santa Fe Nat. Tobacco Co. Mktg. & Sales Practices
Litig., 178 F.Supp.3d 1377, 1378 (U.S. Jud. Pan. Mult.
Lit. 2016)(“Transfer Order”). One Plaintiff
with an action pending in the District of New Mexico, Ceyhan
Haskal, moved for centralization under 28 U.S.C § 1407.
See Transfer Order, 178 F.Supp.3d at 1378. Santa Fe
Tobacco and Reynolds American opposed centralization, but
agreed that the District of New Mexico was an appropriate
transferee forum. See Transfer Order, 178 F.Supp.3d
at 1378. All responding Plaintiffs agreed on centralization,
but disagreed upon the transferee district. See
Transfer Order, 178 F.Supp.3d at 1378. The Judicial Panel on
Multidistrict Litigation concluded that the actions presented
“involve common questions of fact, and that
centralization will serve the convenience of the parties,
” and ordered consolidation. Transfer Order, 178
F.Supp.3d at 1378-79. The Panel further concluded that the
District of New Mexico was an appropriate transferee district
because: (i) Santa Fe Natural Tobacco is headquartered in the
District of New Mexico; (ii) key witnesses reside in the
District of New Mexico; (iii) four actions were pending in
the District of New Mexico; (iv) the Defendants agreed that
the District of New Mexico provides a “convenient and
accessible location for the geographically dispersed
litigation”; and (v) centralizing before the Court
allowed the Panel “to assign [the] litigation to an
able and experienced jurist who has not had the opportunity
to preside over [a multidistrict litigation].” Transfer
Order, 178 F.Supp.3d at 1379.
The Motion to Dismiss.
Defendants move to dismiss all claims under rule 12(b)(6) of
the Federal Rules of Civil Procedure. See MTD at 1.
The Defendants marshal ten arguments in favor of full or
partial dismissal: (i) the Consent Order preempts the
Plaintiffs' claims; (ii) the First Amendment shields the
Defendants from liability; (iii) state statutory safe harbors
protect the Defendants from the Plaintiffs' unfair and
deceptive practice claims; (iv) the unfair and deceptive
practice claims fail, because the Defendants' statements
do not mislead a reasonable consumer; (v) the
unjust-enrichment claims fail, because the Defendants'
cigarette advertising is not misleading; (vi)
unjust-enrichment is improperly pled, because the Plaintiffs
either have a legal remedy or state law otherwise bars the
claims; (vii) the Defendants did not breach an express
warranty; (viii) the Plaintiffs did not give pre-litigation
notice and fail to establish privity; (ix) the
Plaintiffs' request for injunctive relief is rendered
moot; and (x) the Court does not have specific or general
personal jurisdiction over Reynolds America with respect to
the Plaintiffs' claims who were not parties to the North
Carolina suit. See MTD at 6-80. Before addressing
the Defendants' arguments, some context to the
Plaintiffs' claims would aid in understanding the issues
before the Court. The Plaintiffs allege that the Defendants
packaging, labeling, and advertising deceived them in three
ways. The three theories of deception are as follows:
(1) The Safer-Cigarette Theory: the
Plaintiffs argue that the use of the terms organic, natural,
and additive-free mislead tobacco consumers into believing
that Natural American cigarettes are safer and healthier.
See Amended Complaint ¶¶ 4-8, 47-66, at
2-3, 22-31; MTD at 22-24.
(2) The Menthol Theory: the Plaintiffs argue
that, by labeling Natural Americans cigarettes with menthol
“additive-free” and “natural, ” the
Defendants mislead menthol consumers, because menthol is an
additive. See Amended Complaint ¶¶ 10,
67-69 at 3, 31-32; MTD at 24-25.
(3) The Unprocessed-Cigarette Theory: the
Plaintiffs argue that, by labeling Natural American
cigarettes as Natural, the Defendants mislead consumers into
believing that Natural American cigarettes are not subjected
to rigorous engineering processes during production.
See Amended Complaint ¶¶ 9, 70-74, at 3,
32-33; MTD at 25.
to the Defendants' arguments, first, the Defendants
assert that the Consent Order preempts the Plaintiffs'
state law claims premised on the Safer-Cigarette Theory.
See MTD at 6-7. According to the Defendants, the
Consent Order “authorized Santa Fe [Tobacco]'s use
of ‘Additive Free' and all other
‘substantially similar terms' (such as
‘Natural')” in Santa Fe Tobacco's
advertisement, as long as it also disclosed in those
advertisements that no additives does not mean a safer
cigarette. MTD at 6-7. The Defendants conclude that, because the
Consent Order authorized the terms, it preempts the
Plaintiffs' state claims under the Supremacy Clause. MTD
at 8-10 (citing Chamber of Commerce of United States v.
Edmondson, 594 F.3d 742, 765 (10th Cir. 2010)).
Defendants also declare that the Consent Order is not a
“minimum ‘floor' that state law can
supplant.” MTD at 14. They argue that the FTC, in
making its determination, reconciled “competing
interests” -- the speaker's right to make truthful
representations versus the consumers' right not to be
misled -- and that the Plaintiffs seek, with their state
claims, to undercut the balance that the FTC struck. MTD at
14. According to the Defendants, the Consent Order, thus,
does not set a floor, but creates a scale that the Supremacy
Clause prevents from tipping toward the Plaintiffs.
See MTD at 14.
Defendants also assert that the FDA's Warning Letter does
not undermine their preemption arguments. See MTD at
15. The Defendants note that, the Warning Letter states that
Santa Fe Tobacco's advertising language violated the
Family Smoking Prevention and Tobacco Control Act, 21 U.S.C.
§ 387 (“Tobacco Control Act”). See
MTD at 15. Nevertheless, the Defendants argue that the
Warning Letter does not change the preemption analysis,
because the Warning Letter does not state that the terms
“Natural” and “Additive-Free” are
false or misleading; rather, it requires the Defendants to
obtain FDA approval before using those terms. MTD at 17. The
Defendants also assert that the Warning Letter cannot
overrule the Consent Order, because the Tobacco Control Act
cannot reasonably “be construed as limiting or
diminishing the authority of the Federal Trade
Commission.” MTD at 17 (quoting 21 U.S.C. §
387n(a)(1)). Although they concede that the Tobacco Control
Act states that “‘[a]ny advertising that
violates' the Act ‘is an unfair or deceptive act or
practice, '” the Defendants maintain that the
Warning Letter is not a “binding determination”
that the Defendants have violated the Tobacco Control Act,
nor does it abrogate the Consent Order. MTD at 17 (quoting 21
U.S.C. § 387n(a)(1)).
the Defendants argue that the First Amendment shields them
from liability. See MTD at 20. The Defendants
contend that the First Amendment is relevant here, even
though it typically protects speakers only from government
action, because the First Amendment protects speakers also
from state tort suits “that seek to stifle or punish
protected speech.” MTD at 20 (citing Snyder v.
Phelps, 562 U.S. 443, 451 (2011); Hill v. Pub.
Advocate of the U.S., 35 F.Supp.3d 1347, 1357 (D. Colo.
2014)(Daniel, J.)). They then aver that Central Hudson
& Gas Electric Corporation v. Public Service Commission
of New York, 447 U.S. 557 (1980)(“Central
Hudson”) demonstrates that they are shielded from
liability, because: (i) their advertising is not misleading;
(ii) there is no substantial interest in silencing the
Defendants' speech; (iii) silencing the Defendants'
speech does not advance a legitimate governmental interest;
and (iv) the Plaintiffs' requests are not narrowly
tailored. See MTD at 21.
Defendants argue that their speech is “lawful”
and “not misleading.” MTD at 21. First, they aver
that adult cigarette usage is lawful. See MTD at 21
(citing Lorillard Tobacco Co. v. Reilly, 533 U.S.
525, 564 (2001)). Second, they argue that the
“natural” and “additive-free”
labeling is not misleading, given their disclosure that:
“No additives in our tobacco does NOT
mean a safer cigarette.” MTD at 21 (emphasis in
original). Third, they assert that the Plaintiffs' three
theories of deception do not demonstrate that the
Defendants' speech is inherently misleading. See
MTD at 22. They contend that, under established caselaw, the
First Amendment does not protect inherently misleading
speech, and inherently misleading speech is speech that is
incapable of being presented in a non-deceptive way such that
it would be misleading under all circumstances. See
MTD at 22 (citing Revo v. Disciplinary Bd. of the N.M.
S.Ct., 106 F.3d 929, 933 (10th Cir. 1997); Bioganic
Safety Brands, Inc. v. Ament, 174 F.Supp.2d 1168, 1181
(D. Colo. 2001)(Babcock, J.)). The Defendants argue that
“Natural” and “Additive-Free” can be
presented in non-deceptive way, because the FTC-approved
disclosure that additive-free cigarettes are not inherently
healthier repudiates the inference that Natural American
cigarettes are healthier than other cigarettes. MTD at 22-23.
The Defendants also argue that it is not inherently
misleading to label their menthol cigarettes
“additive-free, ” because “consumers are
not misled by a product's inclusion of an ingredient that
serves as one of its primary distinguishing and desired
characteristics.” MTD at 24. They also argue that the
“additive-free” labeling is not misleading,
because it refers to additive-free tobacco and the menthol is
added to the cigarette filters and not to the tobacco. MTD at
24. Finally, they assert that the “Natural”
labeling is not misleading, even though the Defendants
subject the cigarettes to an engineering process during
production, because “Natural” is too expansive a
concept to mislead any consumers. MTD at 25-26 (citing
Grocery Assoc. v. Sorrell, 102 F.Supp.3d 583 (D. Vt.
Defendants next contend that there is not a substantial
interest in silencing their speech, because it is truthful
and the Government has no interest in preventing truthful
speech. See MTD at 27. They also argue that
preventing the Defendants from using “natural”
and “additive-free” does not materially advance
the Plaintiffs' interest in preventing consumer
deception, because the FTC-mandated disclosure already
prevents deception, so imposing liability will not
“further advance their interest . . . to a
material degree.” MTD at 28-29 (emphasis in
original). Finally, the Defendants argue that the relief
requested is not narrowly tailored, because an additional
disclosure would suffice. See MTD at 29-30.
the Defendants argue that state safe harbors shield them from
the Plaintiffs' statutory claims. See MTD at 30.
The Defendants argue that the California, Colorado, Florida
Count 1, Illinois, Massachusetts, Michigan, New York, Ohio,
and Washington claims fail, because federal law --
specifically, the Consent Order -- permits the
Defendants' advertising, and the various states' safe
harbors foreclose liability for conduct that federal law
permits. See MTD at 31-35, 37-39. The Defendants
also argue that the New Jersey and North Carolina claims
fail, because those states' safe harbors preclude
liability for conduct that has been concretely or pervasively
regulated, and, according to the Defendants, the Consent
Order “deal[t] specifically, concretely, and
pervasively” with their advertising. MTD at 35-36, 38.
the Defendants aver that fourteen of the Plaintiffs'
nineteen state statutory claims fail, because their
advertising is not false or misleading to a reasonable
consumer. See MTD at 39-40. The Defendants contend
that a reasonable consumer would not believe that Natural
American cigarettes are healthier than other cigarettes based
on the “Natural” and “Additive-Free”
labeling, because the labeling disclaims that their
cigarettes are safer than other cigarettes. MTD at 42-46.
Regarding the Menthol Theory, the Defendants also argue that
“a reasonable consumer . . . could not have been misled
into believing that [Natural American] cigarettes labeled
‘menthol' on the package would not contain
menthol.” MTD at 46 (emphasis in original). Finally,
the Defendants argue that a reasonable consumer would not
believe that the tobacco in Natural American cigarettes was
unprocessed even though Natural American cigarettes are
labeled as “Natural, ” because “virtually
all manufactured products undergo some form of
processing.” MTD at 47-48 (emphasis in original).
Defendants also assert that four of the Plaintiffs'
statutory claims fail, because the relevant statutes do not
provide relief under these circumstances. See MTD at
49. They contend that: (i) the injunctive relief requested
under the Illinois Uniform Deceptive Trade Practices Act, 815
Ill. Comp. Stat. 510, is inappropriate, because injunctive
relief requires a likelihood of future harm, and the
Plaintiffs admit they will not purchase Natural American
cigarettes again; (ii) the Plaintiffs' New Jersey Truth
in Consumer Contract Warranty and Notice Act, N.J. Stat. Ann.
§ 56:12-14 (“TCCWNA”), claim fails, because
a predicate act is needed, and there can be no predicate act,
because the Defendants' advertising would not mislead a
reasonable consumer; (iii) the Ohio Consumer Sales Practice
Act, Ohio Rev. Code Ann. § 1345 (“OCSPA”),
claim fails, because the Plaintiffs do not allege that they
notified the Defendants of their unlawful conduct; and (iv)
the Ohio Deceptive Trade Practices Act, Ohio Rev. Code Ann.
§ 1345.02, (“ODTPA”) claim fails, because
that law does not create a private right of action for
consumers. See MTD at 50-52.
the Defendants contend that the unjust-enrichment claims
fail, because the Plaintiffs have not alleged any misleading
conduct. See MTD at 52. As an initial matter, the
Defendants argue that the three transferor courts'
choice-of-law approaches dictate that the laws of the twelve
states where the Plaintiffs purportedly purchased their
cigarettes govern the unjust-enrichment analysis.
See MTD at 53-54. According to the Defendants, the
unjust-enrichment claims fail, because the “Plaintiffs
received precisely what they paid for -- cigarettes made with
additive-free, natural tobacco -- and so there is no
injustice to be remedied.” MTD at 53.
the Defendants argue that ten of the twelve unjust-enrichment
claims fail, because the Plaintiffs have an adequate legal
remedy -- a state law damages claim. See MTD at 55.
The Defendants also argue that the Michigan, New Jersey,
North Carolina, and Ohio unjust-enrichment claims fail,
because the Plaintiffs do not allege that they directly
purchased the Natural Americans from any of the Defendants.
See MTD 60-61. The Defendants also argue that the
New Jersey unjust-enrichment claim fails, because it sounds
in tort, and the New York unjust-enrichment claim fails,
because it duplicates the Plaintiffs' statutory claims.
See MTD at 62-63.
the Defendants argue that they did not breach an express
warranty by selling menthol cigarettes. See MTD at
64. They argue that, under California and New York Law, a
breach of an express warranty requires the Plaintiffs to have
reasonably relied on a warranty, and the Plaintiffs did not
do so here. See MTD at 64. The Defendants also argue
that the Plaintiffs' breach-of-express-warranty claims
fare no better under Colorado, Florida, Illinois, New Jersey,
New Mexico, or North Carolina law, because those states
require a court to read the “alleged express
warranties” in conjunction with “potentially
limiting language.” MTD at 65. They argue that, thus,
the “menthol” language “necessarily
modified any warranty, ” such as the
“Additive-Free tobacco” warranty to mean that
“the product, in fact, contains menthol.” MTD at
the Defendants argue that the express warranty claims fail
under California, Florida, Illinois, New Mexico, New York,
and North Carolina law, because the Plaintiffs did not give
the Defendants notice before filing suit. See MTD at
66. The Defendants assert that Florida, Illinois, and New
York law preclude the express warranty claims, because
“privity is required, ” and the Plaintiffs cannot
establish privity. MTD at 67.
the Defendants argue that the Plaintiffs' request for
injunctive relief is rendered moot. See MTD at 68.
The Defendants maintain that, because they have entered a
Memorandum of Agreement with the FDA, see Memorandum
of Agreement, under which Santa Fe Tobacco will cease using
“additive-free” and “natural” going
forward (except for the “Natural” in the
“Natural American Spirit” brand name), an
injunction is inappropriate, because the Defendants have
already undertaken the action that the Plaintiffs have
requested. MTD at 68-69. The Defendants aver that the
Plaintiffs' requested injunction does not satisfy the
mootness doctrine's voluntary-cessation exception,
because, if they resumed using “Natural” or
“Additive-Free, ” the Defendants would expose
themselves to an FDA enforcement action. MTD at 69-70 n.26.
The Defendants argue, accordingly, that the Memorandum of
Agreement renders “moot Plaintiffs' requests for
injunctive relief.” MTD at 68.
the Defendants assert that the Court lacks personal
jurisdiction over Reynolds American with respect to the five
Plaintiffs' claims who were not parties to the North
Carolina suit. See MTD at 70. In sum, the Defendants
argue that the Court lacks both specific and general personal
jurisdiction over Reynolds America. See MTD at 73.
Turning first to specific personal jurisdiction, they contend
that Reynolds American has not purposefully directed its
activities at any of the transferor court states.
See MTD at 74. They argue that the Plaintiffs'
allegation that Reynolds America is “intimately
involved in the marketing, advertising, and overall business
development, ” Amended Complaint ¶ 27, at 12, of
Natural American cigarettes is conclusory, and that the
“mere involvement in nationwide advertising” does
not amount to the requisite directed activity, MTD at 74.
Turning to general personal jurisdiction, the Defendants say
that general personal jurisdiction is proper only in North
Carolina, because Reynolds America has no continuous and
systematic contacts with any other state. See MTD at
75. Specifically, they contend that Reynolds America
“does not do business in any of the transferor States
other than North Carolina, does not have any registered
agents in any of those States, and does not employ any
employees in any of those States. . . . Nor does RAI maintain
bank accounts in any of those states.” MTD at 75-76.
The Defendants also argue that Santa Fe Tobacco's
contacts cannot be imputed onto Reynolds America.
See MTD at 76. They contend that, to impute a
subsidiary's contact onto a parent corporation, the
parent company must control the subsidiary's day-to-day
activities, and, here, the allegations that Reynolds America
“‘exercises control over [Santa Fe's]
corporate decisionmaking' and involves itself in Santa
Fe's business by treating it as ‘an operating
segment'” are conclusory. MTD at 77 (quoting
Amended Complaint ¶¶ 34-35, at 13-14)(brackets in
MTD). They add that Reynolds American is not involved in
Santa Fe Tobacco's day-to-day operations nor is it
controlling those operations. See MTD at 78.
Plaintiffs responded by filing the Plaintiffs' Opposition
to Defendants' Motion to Dismiss the Consolidated Amended
Class Action Complaint and Incorporated Memorandum of Law,
filed April 6, 2017 (Doc. 98)(“Response”). First,
they contend that the Consent Order does not impliedly
preempt their claim based on the Safer-Cigarette Theory,
because: (i) the FTC's governing statute states that
“remedies provided in this section are in addition to,
and not in lieu of, any other remedy or right of action
provided by state or federal law, ” Response at 7,
(emphasis omitted)(citing 15 U.S.C. § 57b(e)); and (ii)
the Supreme Court rejected the same arguments that the
Defendants bring, namely that an FTC Consent Order requiring
a disclosure on a tobacco product impliedly preempts a state
deceptive practices claim, see Response at 9 (citing
Altria Group, Inc. v. Good, 555 U.S. 70, 89
(2008)(“Altria II”)). The Plaintiffs
also refute the Defendants' argument that the United
States Department of Agriculture's regulations governing
entities' use of “organic” preempts their
Safer-Cigarette Theory premised on the term
“organic.” Response at 15 (citing Segedie v.
Hain Celestial Grp., Inc., No. 14-5029, 2015 WL 2168374,
at *2-7 (S.D.N.Y. May 7, 2015)(Roman, J.); Jones v.
ConAgra Foods, Inc., 912 F.Supp.2d 889, 894-96 (N.D.
Cal. 2012)(Breyer, J.); Brown v. Hain Celestial Grp.,
Inc., No. 11-3082, 2012 WL 3138013, at *6-12 (N.D. Cal.
Aug. 1, 2012)(Beeler, J.)).
Plaintiffs also aver that the First Amendment does not
protect the Defendants from liability. See Response
at 16. They argue broadly that dismissing their false and
misleading marketing claims is inappropriate on a motion to
dismiss as “such a determination [of falsehood] is for
the trier of fact.” Response at 16-17. The Plaintiffs
also argue that the Central Hudson test does not
apply to sellers or manufacturers who lie about a product in
advertising. See Response at 18 (citing Fed.
Trade Comm'n v. Wellness Support Network, Inc., No.
10-4879, 2014 WL 644749, at *10 (N.D. Cal. Feb. 19,
2014)(Spero, M.J.)). They continue, however, that, if
Central Hudson applies, they still satisfy the test.
See Response at 18. They argue that, under
Central Hudson's first prong, the
Defendants' advertising is misleading, so the
Defendants' speech “does not merit any First
Amendment protection.” Response at 19. The Plaintiffs
refute the Defendants' contention that they must show
that the Defendants' speech is “inherently
misleading, ” because they challenge the statute
“as applied” to specific representations to
Plaintiffs. Response at 20 (citing John Doe No. 1 v.
Reed, 561 U.S. 186, 194 (2010)). The Plaintiffs also
argue that, under Central Hudson, the government has
a substantial interest in protecting consumers from deceptive
business practices. See Response at 21.
Plaintiffs next contend that no safe harbors protect the
Defendants from liability. See Response at 23.
First, they argue that, in Altria II, the Supreme
Court determined that “FTC consent orders only
‘enjoin enforcement' of 15 U.S.C. § 45 and
should not be construed as authorizing any specific conduct,
” and that “agency nonenforcement of a federal
statute is not the same as a policy of approval.”
Response at 23-24 (citing Altria II, 555 U.S. at
89-90). They argue that, therefore, the Consent Order
“simply enjoined the FTC from enforcing the FTC Act
against Defendants so long as they complied with its
terms.” Response at 24. The Plaintiffs add that the
Consent Order does not provide complete immunity from suit,
because they allege both false advertising and false
packaging, and the Consent Order applies only to advertising.
See Response at 25-26. They also argue, in a similar
vein, that the Consent Order does not address the use of
“natural” and “organic, ” so the
Consent Order cannot permit the Defendants' use of those
terms. Response at 26. They contend that the Consent
Order's catch-all “substantially similar
terms” language does not capture “natural”
and “organic, ” because the Consent Order does
not list “those two key terms, ” and the
exclusion “cannot be an oversight as the terms are
literally contained in the names of the products” and
the term “natural” was included in the original
FTC investigation. Response at 27.
Plaintiffs argue that, even if the Consent Order governed the
packaging, the Consent Order would not shield the Defendants
from liability. See Response at 28. They aver that
the Defendants “buried the [required] disclaimer in
small text to avoid” consumer attention, flouting the
Consent Order's “equal text size
requirement” in some instances -- particularly on the
packaging. Response at 28. They add that the Defendants did
not bold the word “not” on the packaging as the
Consent Order commands. Response at 28.
Plaintiffs argue that the Consent Order does not trigger any
state safe harbors, because it does not permit the
Defendants' conduct; rather, the Consent Order does not
prohibit it. See Response at 30. The Plaintiffs
continue that their statutory claims are meritorious, because
the Defendants' advertising and packaging would mislead a
reasonable consumer. See Response at 39. First, they
aver that, in most of the relevant jurisdictions, a
statement's capacity to deceive or mislead is a fact
question, inappropriate for a motion to dismiss. See
Response at 39-42 (citing e.g., Williams v.
Gerber Prods. Co., 552 F.3d 934, 938-39 (9th Cir. 2008);
Guidance Endodontics, LLC v. Dentsply Int'l,
Inc., 708 F.Supp.2d 1209, 1241 (D.N.M. 2010)(Browning,
J.); Foster v. Chattem, Inc., No. 14-0346, 2014 WL
3687129, at *3 (M.D. Fla. July 23, 2014)(Dalton, J.);
Biffar v. Pinnacle Foods Grp., LLC, No. 16-0873,
2016 WL 7429130, at *8 (S.D. Ill.Dec. 26, 2016)(Herndon, J.).
Second, they argue that reasonable consumers are not required
to look beyond a cigarette package's frontal disclosures
to uncover the cigarette's safety disclaimer on the
package's side. See Response at 42-43. The
Plaintiffs continue that, for many jurisdictions, the
relevant reasonable consumer test is to analyze the marketing
“as a whole” and not to zoom in on one
disclaimer. Response at 48. See Response at 46-49.
some of the Defendants' state-specific arguments, the
Plaintiffs argue that they are entitled to injunctive relief
under Illinois law, because there is a “continuing risk
to reasonable consumers.” Response at 55. They also
aver that, contrary to the Defendants' contention, they
are not required to give pre-suit notice under Ohio law,
because pre-suit notice is a procedural rule inapplicable in
federal court. See Response at 59. They continue
that, even if pre-suit notice was required, they satisfy the
requirement, because their Amended Complaint provides
sufficient written notice. See Response at 60.
Responding to the Defendants' argument that the
Plaintiffs do not have standing under Ohio law to sue under
ODTPA, the Plaintiffs argue that the statute's express
language grants them standing and that courts have affirmed
that position. See Response at 61 (citing
Schumacher v. State Auto Mut. Ins. Co., 47 F.Supp.3d
618, 630-32 (S.D. Ohio 2014)(Spiegel, J.); Bower v.
IBM, 495 F.Supp.2d 837, 843 (S.D. Ohio 2004)(Rice, J.)).
Plaintiffs continue that they have properly pled their
unjust-enrichment claim. See Response at
62. The Plaintiffs contend that the
Defendants' argument that the Plaintiffs' available
legal remedy bars their unjust-enrichment claim is premature
under rule 8(d) at the motion-to-dismiss stage. See
Response at 63 (citing In re Dial Complete Mktg. &
Sales Practices Litig., No. 11-2263, 2013 WL 1222310, at
*8 (D.N.H. March 26, 2013)(McAuliffe, J.)). They add that the
Defendants “adequate remedy at law” arguments
flout the presumption that state statutes should not be
interpreted to displace common-law claims, unless there is
specific legislative intent to the contrary. Response at 63.
The Plaintiffs also argue that, under the common law for ten
relevant states, their unjust-enrichment claims prevail,
notwithstanding the Defendants' arguments to the
contrary, because: (i) they request equitable relief distinct
from a legal remedy; (ii) there was no express contract;
(iii) statutory relief's availability does not bar
equitable relief; or (iv) dismissal at the motion to dismiss
stage is premature. See Response at 63-68. They
argue that they have alleged a direct benefit to the
Defendants, sufficient to satisfy the unjust-enrichment
standard in Michigan, North Carolina, New Jersey, and Ohio,
“in the form of a price premium, increased sales and
increased market share.” Response at 69. The Plaintiffs
add that, contrary to the Defendants' argument that the
Plaintiffs unjust-enrichment allegation fails in New Jersey
because it sounds in tort, New Jersey law has no such
requirement and that, regardless, their claim is viable,
“because it could properly be construed as an equitable
remedy” under rule 8(a)(3). Response at 70.
Plaintiffs also aver that they properly pled their
breach-of-express-warranty claims. See Response at
72. They contend that product labels create “actionable
express warranties, ” that the Defendants breached an
express warranty by adding menthol to their
“additive-free” cigarettes, and, alternatively,
that dismissal is premature. Response at 72. They also say
that the Defendants had adequate pre-litigation notice of the
breach-of-express-warranty claims, because their Amended
Complaint put the Defendants on notice, the Defendants
“have not been prejudiced, and they had an opportunity
to cure the defect -- they knew that their claims that their
menthol cigarettes are ‘100% Additive Free' are
false.” Response at 73 (citing Amended Complaint ¶
68, at 30). The Plaintiffs add that, even if they did not
meet the pre-suit notice requirement, they meet several state
law exceptions to the notice requirement. See
Response at 74. They argue that: (i) under New York law, no
notice is required for suits involving goods that people
consume; (ii) under California law, the notice requirement is
inapplicable against manufacturers with whom consumers have
not dealt; and (iii) under North Carolina and Illinois law,
filing a lawsuit meets the notice requirement. See
Response at 74-75.
Plaintiffs argue that the Memorandum of Agreement does not
render moot their injunctive relief request, because the
Memorandum of Agreement exists outside the Amended
Complaint's four corners. See Response at 76.
They also contend that the Memorandum of Agreement does not
cover the Plaintiffs' request that the term natural be
removed from their packaging and labeling, so injunctive
relief cannot be rendered moot. See Response at 76.
the Plaintiffs contend that the Court has personal
jurisdiction over Reynolds American. See Response at
77. They argue that Reynolds American has substantial
involvement in the activities giving rise to their claims.
See Response at 78. They contend that: (i) Reynolds
American has an integrated system where executives amongst
the three Defendants collaborated; (ii) Reynolds American
essentially controls Santa Fe Tobacco's operations, and
the two entities share assets and board members; (iii) Santa
Fe Tobacco's employees are considered Reynolds American
employees; and (iv) Reynolds American is involved in and
controls Santa Fe Tobacco's advertising campaign.
See Response at 78 (citing Amended Complaint
¶¶ 29, 35-36, at 13-14). They conclude that,
because of Reynolds American's active participation in
its subsidiaries, the Court has “specific personal
jurisdiction over [the] parent company” -- Reynolds
American. Response at 79.
30, 2017, the Defendants replied to the Plaintiffs'
Response. See Defendants' Reply in Support of
Motion to Dismiss the Consolidated Amended Complaint at 1,
filed May 30, 2017 (Doc. 107)(“Reply”). The
Defendants maintain that the Consent Order preempts the
Plaintiffs' Safer-Cigarette Theory, because the Consent
Order “authorizes the exact representations at
issue here by this exact manufacturer.” Reply
at 2 (emphasis in original). They refute that Altria
II undermines their argument, because, the Consent Order
in this case, unlike the Consent Order in Altria II,
“affirmatively permits” the terms at issue by
stating that it will not prohibit terms such as natural or
additive-free. Reply at 4. They also contend that, in
Altria II, the United States of America expressly
disavowed any policy authorizing the terms at issue in an
amicus brief. See Reply at 5 (citing Brief for the
United States as Amicus Curiae Supporting Respondents at 15,
No. 07-562, 555 U.S. 70, available at
https://goo.gl/6VvJzA). The Defendants also refute
that 15 U.S.C. § 57b(e) undercuts their preemption
argument, because that statute applies only to FTC rules or
an FTC cease-and-desist order and not to Consent Orders under
15 U.S.C. § 45(b). See Reply at 6. The
Defendants also state that the Plaintiffs never pled an
“organic-based” deception claim, but if they had
pled one, such a theory would fail, because the Defendants
have complied with regulations under the Organic Food
Production Act, 7 U.S.C. § 6501(2), which allow
advertising and labeling to have the term organic -- subject
to certain conditions. Reply at 9 (citing 7 U.S.C. §
to their First Amendment arguments, the Defendants maintain
their previous arguments, see Reply at 10-13, and
contend that the Plaintiffs' argument that Central
Hudson does not apply to false or misleading advertising
is flawed, because the Defendants found only one unpublished
decision supporting that argument and that decision does not
explain why the First Amendment protects commercial speech
limitations imposed via government regulation, but leaves
exposed the same speech via a lawsuit, see Reply at
11 n.7. The Defendants also argue that the Plaintiffs address
only one of Central Hudson's factors.
See Reply at 13. They continue that the
Plaintiffs' argument as to that one factor is flawed,
because the Defendants' speech is not deceptive.
See Reply at 13.
Defendants' reassert their arguments that state safe
harbors shield them from liability, because the Consent Order
permits their conduct. See Reply at 14. The
Defendants also argue that the term “natural”
falls within the Consent Order's purview, because an FTC
letter confirms that “natural” is substantially
similar to “additive free.” Reply at 15 (citing
MTD at 8). The Defendants also assert that, contrary to the
Plaintiffs' position, the Court can conclude, on a rule
whether a reasonable consumer would be misled. See
Reply at 20 (citing Fink v. Time Warner Cable, 714
F.3d 739, 741 (2d Cir. 2013)(per curiam)). They continue that
the packaging would not mislead a reasonable consumer,
because the terms “natural” and
“additive-free” do not, on their face, contradict
the package's safety disclosure. Reply at 22. The
Defendants also maintain that Santa Fe Tobacco manufactures
cigarettes with additive-free tobacco and contends that the
Plaintiffs' arguments that the “additive
free” label is misleading, because menthol migrates
into the tobacco post-production is incorrect as a matter of
law, because the Plaintiffs concede that menthol
“migration is inevitable.” Reply at 23
(emphasis in original)(citing Response at 52). Responding to
state-specific refutations, the Defendants counter that
pre-suit notice requirements are substantive law under
Erie R. Co. v. Tomkins, 304 U.S. 64 (1938), so Ohio
pre-suit notice law binds the Court here. See Reply
at 25 (citing Curry v. High Springs Family Practice
Clinic & Diagnosis Ctr. Inc., No. 8-0008, 2008 WL
5157683, at *9 (N.D. Fla. Dec. 9, 2008)(Paul, J.)) They also
contend that filing a complaint does not satisfy the notice
requirement. See Reply at 25.
to the Plaintiffs' unjust-enrichment claims, the
Defendants argue that the Plaintiffs may not plead an
unjust-enrichment claim in the alternative to a legal claim.
See Reply at 27. First, the Defendants contend that
the Plaintiffs' reliance on express-contract cases where
the contract's existence was at issue doom their
unjust-enrichment-in-the-alternative theory, because those
cases do not speak to available statutory remedies.
See Reply at 27. Second, the Defendants aver that
courts have rejected unjust-enrichment-in-the-alternative
theories in similar circumstances. See Reply at 28
(citing In re Ford Tailgate Litig., No. 11-2953,
2014 WL 1007066, at *5 (N.D. Cal. March 12, 2014)(Seeborg,
Defendants also contend that the Plaintiffs failed to give
the requisite pre-suit notice for their
breach-of-express-warranty claims. See Reply at 34.
Regarding state specific statutes, the Defendants argue that
general knowledge of general facts giving rise to the lawsuit
are insufficient under Illinois law to provide notice.
See Reply at 35. They also contend that the
exceptions to notice that the Plaintiffs invoke under
Illinois, North Carolina, and New York Law are inapplicable,
because those exceptions apply only in personal injury cases.
See Reply at 35. The Defendants argue that,
similarly, California's exception applies only to tort
cases and not to contract cases. See Reply at 36.
the Plaintiffs' requested injunctive relief, the
Defendants note that they have not finalized changes to their
label. See Reply at 37-38. The Defendants argue,
however, that the requested relief is still rendered moot,
because the label changes will occur by December, 2017,
“long before this case reaches judgment.” Reply
at 38. See Reply at 37-38. Regarding the
voluntary-cessation doctrine, the Defendants argue that the
Plaintiffs have pointed to no supportable reason to suggest
that the Defendants would resume their prior labeling in the
future. See Reply at 38. From that premise, the
Defendants conclude that the voluntary cessation doctrine is
inapplicable. See Reply at 38.
the Defendants argue that the Plaintiffs conceded that the
Court does not have general personal jurisdiction over
Reynolds American. See Reply at 39. They also argue
that the Plaintiffs' allegations do not rise to the level
needed for specific jurisdiction, because they do not
plausibly support that Reynolds American benefitted from some
purposive conduct directed at the forum state sufficient to
establish consent to the forum's jurisdiction.
See Reply at 39. They also argue that the
Plaintiffs' cannot impute Santa Fe Tobacco's contacts
onto Reynolds American, because Reynolds American does not
have control or de facto dominance over Santa Fe Tobacco.
See Reply at 39-40. The Defendants argue that there
is no exception to the normal jurisdictional rules for
tobacco companies. See Reply at 40. They conclude
that, therefore, the Court does not have personal
jurisdiction over Reynolds American. See Reply at
The June 9, 2017 Hearing.
Court held a hearing on June 9, 2017. See Transcript
of Motion Proceedings (taken June 9, 2017), filed June 16,
2017 (“June Tr.”). Taking each argument in turn,
the Defendants began by arguing that FTC Consent Orders, even
in light of Altria II, still have preemptive effect.
See June Tr. at 15:11-17 (Biersteker). The
Defendants maintain, as they argued in their Reply, that
Altria II applies only to the consent order at issue
in Altria II and not to consent orders generally.
See June Tr. at 15:24-16:5 (Biersteker). Responding
to the Court's observation that “the Supreme Court
is so divided on preemption these days, ” June Tr. at
16:18-19 (Court), the Defendants noted that the Supreme Court
focused on only the FTC cease and desist order at issue in
Altria II, and did not “enunciate some sort of
blanket rule that consent decrees cannot be afforded
preemptive effect, ” June Tr. at 16:25-17:1
(Biersteker). See June Tr. at 16:22-18:11
(Biersteker). The Defendants also argued that, in contrast to
the Altria II consent order, the parties have abided
by the Consent Order at issue here, the FTC has not
questioned the Consent Order's mandated disclosure, and
the Consent Order here, unlike Altria II's
consent order, has language permitting the advertising
language. See June Tr. at 18:12-18 (Biersteker);
id. at 19:17-20:19 (Biersteker). The Court pressed
that Consent Orders change based on different
administrations, and it queried how a federal judge could
choose, in a principled manner, which Consent Orders
preempted state law and which did not. See June Tr.
22:22-23:10 (Court); id. at 23:16-23 (Court). The
Defendants responded that, because federal regulatory action
is generally given preemptive effect, the principled response
would be to scrutinize Consent Orders on a case-by-case basis
to determine whether the regulatory agency has considered the
conduct at issue. See June Tr. at 24:4-12
Plaintiffs responded that caselaw clearly signals that the
Consent Order does not preempt their claims. See
June Tr. at 25:2-26:6 (Reese)(citing Pueblo of Pojoaque
v. New Mexico, 214 F.Supp.3d 1028 (D.N.M.
2016)(Browning, J.)). They further averred that the Consent
Order does not apply to the Defendants' cigarette
labeling, because the Consent Order's text does not
mention labeling, and the FTC's regulatory structure
forbade them from regulating labeling when the Consent Order
was entered. See June Tr. at 29:1-7 (Reese). The
Plaintiffs also pressed their argument from briefing that 15
U.S.C. § 57b(e) precludes consent decrees from barring
other litigation. See June Tr. at 31:20-32:13
Defendants responded that the Plaintiffs' statutory
interpretation is flawed, because a different section governs
FTC consent decrees. See June Tr. at 33:10-13
(Biersteker). The Defendants continued that, although the
United States Court of Appeals for the First Circuit, in
Good v. Altria, 501 F.3d 29 (1st Cir. 2007), adopted
reasoning similar to the Plaintiffs' reasoning here, the
Supreme Court did not adopt that reasoning in Altria
II, so the Court should disregard the First
Circuit's reasoning. See June Tr. at 34:14-23
(Biersteker). The Defendants added that the First
Circuit's reasoning -- and the Plaintiffs' -- is
flawed, because it ignores the statutory text. See
June Tr. at 33:24-34-9 (Biersteker). The Defendants also
argued that a reasonable consumer would know to look at the
side of a cigarette pack for warnings given that the Surgeon
General's warning on the side of a pack is adequate under
the Federal Cigarette Labeling and Advertising Act, 15 U.S.C.
§§ 1331-1341 (“FCLAA”). See
June Tr. at 35:11-24 (Biersteker); 15 U.S.C. § 1331.
full-force to the reasonable consumer arguments, the
Defendants contended that the Court can consider whether the
contested advertising language is deceptive or misleading as
a matter of law under rule 12(b)(6), and the Court agreed.
See June Tr. at 39:4-9 (Court, Schultz). The
Defendants maintained their position from their briefing that
no reasonable consumer would believe that additive-free
menthol cigarettes would not contain menthol. See
June Tr. at 40:19-23 (Schultz).
Court responded with an analogy and asked whether a
reasonable consumer would be deceived if Coca-Cola
bottle's front labeling stated that there was no sugar in
the product, but the back labeling stated there was sugar.
See June Tr. at 42:5-15 (Court). The Defendants
replied that the important difference between its case and
the Court's analogy is the particular wording on Natural
American's labeling; they averred that the language
“menthol-flavored” and “the ingredients are
organic tobacco and menthol” would alert “a
consumer who chooses a menthol cigarette.” June Tr. at
42:16-25 (Schultz). The Defendants again stressed that the
one-hundred-percent additive-free tobacco labeling is true,
because the menthol is “part of the cigarette, ”
but “not part of the tobacco, ” June Tr. at
43:15-16 (Schultz), yet conceded that, when the cigarette is
smoked, inevitably the menthol “is part of and touches
the tobacco, ” id. at 43:19-23 (Court,
Schultz). See June Tr. at 43:6-8 (Schultz).
Plaintiffs responded that there is a body of caselaw ruling
that a reasonable consumer is not required to turn around a
label to verify whether a representation on the front is
truthful. See June Tr. at 51:25-52:7 (Wolchansky).
The Plaintiffs also argued that consumers may not know much
about menthol. See June Tr. at 79:18-24
(Wolchansky). The Plaintiffs added that, even if the Court
accepts the Defendants' argument that tobacco is separate
from the menthol while the cigarette remains unsmoked, it is
still disingenuous to suggest that the tobacco is
additive-free when, “the minute that you light that
cigarette, ” the menthol, the chemicals, and
“everything in that cigarette goes into your mouth and
into your lungs.” June Tr. at 53:18-54:4 (Wolchansky).
The Plaintiffs explained that menthol is an “organic
molecule . . . derived from mint, ” although it
“it can [also] be synthesized chemically in a lab,
” June Tr. at 64:13-16 (Schlesinger), it “acts as
an anesthetic, ” id. at 56:18 (Schlesinger),
“numbs the throat, ” id. at 56:23-24
(Schlesinger), and makes the smoke “inhalable, ”
id. at 57:4 (Schlesinger). See June Tr. at
56:15-57:9 (Schlesinger). The Plaintiffs also argued that the
Honorable Judge Gladys Kessler of the United States District
Court for the District of Columbia already determined that
Natural American's use of “the term
‘natural' is unlawful, ” because it suggests
that it “confer[s] health benefits, ” and the
Plaintiffs ask the Court to “enforce her order.”
June Tr. at 58:8-21 (Schlesinger). See United States v.
Philip Morris USA, Inc., 449 F.Supp.2d 1 (D.D.C.
Plaintiffs argued that the natural, additive-free, and
organic advertising misleads consumers into believing Natural
Americans are safer or healthier. See June Tr. at
65:19-24 (Wolchansky). They contended that the disclaimer
“does not mean that the front of the pack isn't
misleading, ” June Tr. at 67:5-6 (Wolchansky), because
the disclaimer is “buried, ” id. at
67:25 (Wolchansky), as “tiny text on the side of the
pack, ” id. at 67:22-23 (Wolchansky),
underneath the barcode and is phrased in a double negative,
see June Tr. at 67:18-68:15 (Wolchansky). The
Plaintiffs added that the FDA's Warning
Letter buttresses their position, because it
tells the Defendants that “Natural and Additive-free
represents explicitly and/or implicitly that the products or
their smoke do not contain or are free from a substance
and/or that the products present a lower risk of
tobacco-related disease or are less harmful.” June Tr.
at 69:3-14 (Wolchansky)(quoting Warning Letter at 2). The
Plaintiffs continued that, in addition to the Warning Letter,
peer-reviewed articles conclude that consumers believe that
Natural American cigarettes are healthier based on the terms
natural, organic, and additive-free. See June Tr. at
70:19-22 (Wolchansky); id. at 72:23-73:4
(Wolchansky). See also June Tr. at 74:17-23
(Wolchansky)(noting that 63.9 percent of Natural American
smokers think that Natural American cigarettes are less
harmful than other brands); id. at 76:14-20
(Wolchansky)(noting that sixty percent of consumers believe
that removing additives from cigarettes make them less
dangerous to smoke). The Plaintiffs argued that the caselaw
the Defendants cite is inapposite, because, in those cases,
the disclaimer is prominent, unlike Natural American's
disclaimer. See June Tr. at 82:6-19 (Wolchansky).
to the Menthol Theory, the Court, again emphasized its
concerns that the one-hundred-percent additive-free labeling
misleads consumers. See June Tr. at 87:5-6 (Court).
It also posited that the “100% Additive-Free” and
“Natural Tobacco” labeling is not on one line,
but two lines, and that the Plaintiffs might argue that the
labeling conveys two separate messages. June Tr. at 87:12-22
(Court). The Defendants disagreed and argued that the
labeling conveys one message. See June Tr. at
87:23-88:1 (Schultz). The Court also noted that the
package's disclaimer focuses only on the
advertising's additive term “and doesn't really
address the issue about the natural” term. June Tr. at
89:23-24 (Court). See June Tr. at 89:9-24 (Court).
It further noted that the advertising disclaimers diverge
from the packaging disclaimers. See June Tr. at
91:2-10 (Court). The Defendants rejoined that the FTC Consent
Order does not require a packaging disclaimer, so, by
inserting any disclaimer at all, they went beyond FTC's
requirements. See June Tr. at 91:23-92:3 (Schultz).
The Defendants added that the Amended Complaint does not
address the FTC disclaimer, and argued that a reasonable
consumer looks at both the advertising labels and the
disclaimer. See June Tr. at 92:13-93:3 (Schultz).
They also argued that the disclaimer does not contradict the
natural or additive-free language, but “helps to
amplify the meaning.” June Tr. at 94:4-9 (Schultz).
They continued that “natural” is a word with no
meaning under the reasonable consumer standard, because
“it can have different meanings in different contexts,
” so it cannot have a “safer cigarette”
meaning that the Plaintiffs ascribe to it. June Tr. at 96:1-9
Court disagreed and thought that natural had some meaning,
otherwise corporations would not use it on products, but it
was not convinced that the natural term necessarily signals
to a reasonable consumer that the cigarettes are safer.
See June Tr. at 100:19-101:5. The Plaintiffs argued
that, even if natural does not have a precise and fixed
meaning, it still suggests to a reasonable consumer that
Natural American cigarettes are not produced through human
alteration or engineering. See June Tr. at 102:16-20
(Schlesinger). The Plaintiffs persisted that the natural
labeling conveys a message that the Defendants wrap up the
tobacco from the plants and sell the product as-is, and that
additives associated with tobacco products “are
gone” from Natural American cigarettes. See
June Tr. at 102:21-103:10 (Schlesinger). The Court responded
that natural's meaning might turn on the product sold;
for example, a natural marshmallow might be different from a
natural orange. See June Tr. at 123:15-25 (Court).
The Plaintiffs rejoined that the “natural here means
safer and healthier, and it also means that it is
manufactured in a way that is natural, ” but “the
truth is, it's not.” June Tr. at 124:1-4
(Wolchansky). The Plaintiffs conceded that a reasonable
consumer does not think that natural means that the
cigarettes are hand rolled, see June Tr. at
124:16-17 (Wolchansky), but argued that whether flue curing
the cigarettes or packing the cigarettes with nicotine is a
“natural” processes “is a question of fact
for a jury, ” June Tr. at 124:19-20 (Wolchansky). The
Plaintiffs explained that, in its natural state, tobacco or
cigarettes are uninhalable; it is only when the cigarettes
are flue cured that cigarettes become inhalable. See
June Tr. at 128:8-20 (Schlesinger). The Plaintiffs
acknowledged that there is no defined meaning for what a
natural manufacturing process is, but emphasized that no
reasonable consumer believes that flue curing and the other
processes, which the Defendants use to make their cigarettes,
are natural. See June Tr. at 126:14-25 (Wolchansky).
The Court concluded that it was inclined to let the Menthol
Theory proceed, but to dismiss the other two theories.
See June Tr. at 133:10-21 (Court).
to the common-law claims, the Defendants argued that rule
8(b) does not allow the Plaintiffs to plead unjust enrichment
in the alternative, because a federal rule of civil procedure
cannot alter state substantive law. See June Tr. at
144:14-18 (Biersteker). They explained that equity fills in
the gaps that legal remedies leave, and that, because the
Plaintiffs have an available legal remedy from the state
statutes, unjust enrichment is improperly pled. See
June Tr. at 145:8-21 (Biersteker). The Defendants concluded
that there is no dispute that legal statutory remedies exist.
See June Tr. at 146:7-8 (Biersteker).
The Supplemental Brief.
30, 2017, the Plaintiffs filed a supplemental brief
addressing several issues raised during the June Hearing.
See Plaintiffs' Supplemental Brief in Opposition
to Defendants' Motion to Dismiss and Consolidated Amended
Class Action Complaint and Incorporated Memorandum of Law at
1, filed June 30, 2017 (Doc. 117)(“Supp. Brief”).
They assert three arguments: (i) whether a reasonable
consumer is misled is typically a fact question that survives
a motion to dismiss; (ii) the Defendants' disclaimer
arguments are misplaced; and (iii) they have adequately pled
their complaint to survive the rule 12(b)(6) standard.
See Supp. Brief at 1-4. First, they assert that the
Court's function is not to weigh the evidence, but to
assess whether the Plaintiffs have plausibly stated a claim.
See Supp. Brief. at 4 (citing Walker v. THI of
N.M. at Hobbs Ctr., 803 F.Supp.2d 1287, 1330 (D.N.M.
2011)(Browning, J.)). They also aver that “the
unanimous weight of case law authority holds that use of
terms ‘natural, ' ‘organic, ' or
‘additive-free' do mislead consumers into believing
that cigarettes so labeled are safer or healthier.”
Supp. Brief at 5 (citing Disc. Tobacco & Lottery,
Inc. v. United States, 674 F.3d 509, 536 (6th Cir.
2012); United States v. Phillip Morris USA, Inc.,
449 F.Supp.2d 1, 27 (D.D.C. 2006)(Kessler, J.); United
States v. Philip, 477 F.Supp.2d 191, 197-98 (D.D.C.
2007)(Kessler, J.); Hunter v. Philip Morris USA
Inc., 364 P.3d 439 (Alaska 2015)).
the Plaintiffs argue that consumers are misled
notwithstanding the disclaimer. See Supp. Brief at
11 (citing Amended Complaint ¶ 52, at 25). They contend
that, under longstanding false advertising law,
representations must be viewed in the context of the
packaging or advertising as a whole, see Supp.
Brief. at 11 (citing Penrod Ricard USA, LLC v. Bacardi
U.S.A., Inc., 653 F.3d 241, 250 (4th Cir. 2011)), and
“how consumers view these claims . . . as a whole . . .
are questions of fact not appropriate for resolution at this
stage, ” Supp. Brief at 11. They also argue that the
disclaimer is so obscured on the package that it
ineffectively warns a reasonable consumer. See Supp.
Brief. at 12. Finally, they argue that a reasonable consumer
is “impervious to health warnings and disclaimers,
” because Natural American smokers had “certainly
seen and ignored health disclaimers on the packs of other
brands” before switching, so the Court “should
give little, if any, weight” to the disclaimers in
deciding the Motion to Dismiss. Supp. Brief at 13.
the Plaintiffs clarify that they do not argue that natural is
misleading “simply because manufacturing steps must be
taken to put their tobacco in cigarette form”; rather,
they argue that the Defendants manufacturing processes do not
conform to a reasonable consumers' understanding of the
natural term. Supp. Brief at 13. They maintain that the term
natural is misleading, because Natural Americans undergo
flue-curing processing, artificial blending, and engineering
to boost nicotine. See Supp. Brief at 14 (citing
Amended Complaint ¶¶ 63-66, 72-73, at 30, 32-33).
They conclude, thus, that it is plausible that a reasonable
consumer would believe that Natural American cigarettes were
less chemically enhanced and less nicotine-laced than other
cigarettes. See Supp. Brief at 14.
The Supplemental Response.
Defendants responded to the Supp. Brief on July 14, 2017.
See Defendants' Response to Plaintiffs'
Supplemental Brief at 1, filed July 14, 2017 (Doc.
124)(“Supp. Resp.”). The Defendants argue that
the Court can, and must, rule on the reasonable consumer
arguments on a Motion to Dismiss. See Supp. Resp. at
2-3 (citing Fink v. Time Warner Cable, 714 F.3d 739,
741 (2d Cir. 2013)(per curiam)(ruling that it is “well
settled that a court may determine as a matter of law that an
allegedly deceptive advertisement would not have misled a
reasonable consumer”)). The Defendants also state that
the administrative and academic findings on the
Defendants' advertising do not bind the Court on a motion
to dismiss, and many of their findings are inapposite,
because the reports did not consider the warning disclosure
or are not final determinations. See Supp. Resp. at
6-7. The Defendants also argue that the Court can disregard
survey data as immaterial where a reasonable consumer would
acknowledge that the advertising is not false or misleading.
See Supp. Resp. at 8. The Defendants aver that their
disclaimer still wards against the Plaintiffs' deceptive
arguments as to the natural term, even though the disclaimer
does not mention natural, because the disclaimer makes clear
that the cigarettes are not safer than any other cigarette.
See Supp. Resp. at 10. The Defendants conclude that
the Plaintiffs' Amended Complaint does not support the
refined processing theory that the Plaintiffs assert in their
Supp. Brief. See Supp. Resp. at 11.
The July Hearing.
Court held a hearing on July 20, 2017. See
Transcript of Motion Proceedings (taken July 20, 2017), filed
August 10, 2017 (Doc. 126)(“July Tr.”). The
Defendants argued that, as to four states' laws, the
Plaintiffs' unjust-enrichment claims fail, because the
Plaintiffs do not properly allege that the advertising
conveys a direct benefit to the Defendants. See July
Tr. at 35:6-17 (Biersteker). They add that unjust enrichment
is a “gap filler, ” and it is likely that those
four states' laws narrow the unjust-enrichment remedy,
“because numerous legal remedies already exist for
consumers who have suffered as a result of deceptive
advertising.” July Tr. at 11-17 (Biersteker). The
Plaintiffs rejoined that, as to Michigan, the direct benefit
element is no longer required. See July Tr. at
37:10-18 (Wolchansky)(citing In re Automotive Parts
Antitrust Litig., 29 F.Supp.3d 982, 1021 (E.D. Mich.
2014)(Battani, J.)). They also countered that there are cases
from the other three states that similarly obviate the
direct-benefit requirement. See July Tr. at
38:11-40:1 (Wolchansky)(citing Stewart v. Beam Global
Spirits & Wine, Inc., 877 F.Supp.2d 192 (D.N.J.
2012)(Hillman, J.); Paika v. General Motors Corp.,
No. 07-0892, 2009 WL 275761 (E.D. Cal. Feb. 5, 2009)(Darmell,
the pre-suit notice requirement for the express warranty
claims, the Defendants admitted that the Amended Complaint
alleges that the Plaintiffs performed “all conditions
precedent to defendants' liability, ” July Tr. at
41:3-6 (Biersteker)(quoting Amended Complaint ¶ 456, at
104), but the Defendants contended that the Amended
Complaint's allegation is “legally insufficient,
” July Tr. at 41:13-14 (Biersteker). The Defendants
added that filing the Amended Complaint is insufficient for
pre-suit notice in Illinois, North Carolina, and New York.
See July Tr. at 43:11-14 (Biersteker). They argue
that the Plaintiffs' cases to the contrary are personal
injury cases, so are inapplicable here. See July Tr.
at 43:14-15 (Biersteker); id. at 44:12-18
(Biersteker). The Plaintiffs countered that their Amended
Complaint serves as pre-suit notice as do the FDA and FTC
letters on these issues, see July Tr. at 48:12-13
(Wolchansky), and that “there is unquestionably
knowledge here, ” July Tr. at 49:25-50:1 (Wolchansky).
to the privity requirement, the Defendants admitted that
three states grant an exception to the privity requirement,
see July Tr. at 45:14-15 (Biersteker), but the
Defendants averred that courts routinely dismiss express
warranty claims “based on product packaging and labels,
” which involve economic loss, as here, July Tr. at
45:15-18 (Biersteker). The Plaintiffs rejoined that recent
federal Florida cases have denied motions to dismiss for
breaches of express warranties on similar facts. See
July Tr. at 50:2-52:4 (Wolchansky)(citing Hill v.
Hoover, 899 F.Supp.2d 1259 (N.D. Fla. 2012)(Mickle, J.);
Smith v. Wm. Wrigley Jr. Co., 663 F.Supp.2d 1336
(S.D. Fla. 2009)(Cohn, J.); Garcia v. Kashi, 43
F.Supp.3d 1359 (S.D. Fla. 2014)(Leonard, J.)). The Plaintiffs
continued that other courts provide similar authority for
their position. See July Tr. at 52:11-53:23
(Wolchansky)(citing Mednick v. Precor, Inc., No.
14-4231, 2014 WL 6474915 (N.D. Ill. Nov. 13,
2014)(Leinenweber, J.); Baldwin v. Star Scientific,
Inc., 78 F.Supp.3d 724 (N.D. Ill. 2015)(Pallmeyer, J.);
Mahoney v. Endo Health Solutions, Inc., No. 15-9841,
2016 U.S. Dist. LEXIS 94732 (S.D.N.Y. July 20, 2016)(Cote,
to the injunctive relief requested, the Defendants conceded
that the Memorandum of Agreement does not cover their use of
“natural” in Natural American's brand name,
so the requested injunctive relief, as to that specific use
of natural, is not rendered moot. July Tr. at 55:4-56:24
(Biersteker). The Plaintiffs also argued that the Memorandum
of Agreement is not a “final document, ” so it
does not render moot their request for injunctive relief.
July Tr. at 59:20-21 (Wolchansky). They continued that the
FDA was recently sued over Santa Fe Tobacco's use of
natural, and that litigation places the Memorandum of
Agreement in jeopardy. See July Tr. at 60:3- 13
(Wolchansky); id. at 60:16-20 (Wolchansky);
id. at 60:24-61:4 (Wolchansky). The Defendants
rejoined that the Memorandum of Agreement “is final,
” July Tr. at 62:23-24 (Biersteker), but conceded that,
if the pending lawsuit against the FDA is successful,
“it would vacate the memorandum, ” July Tr. at
64:3-4 (Biersteker). They also asserted, however, that the
Defendants will not “risk alienating the FDA” by
contravening the Memorandum of Agreement. July Tr. at 66:6-11
Court asked the Defendants whether, in light of the
Plaintiffs' supplemental argumentation that, based on
studies that terms, such as natural, mislead many consumers,
it should reconsider its earlier inclination that the
Plaintiffs' safer-cigarette theory is flawed.
See July Tr. at 67:2-16 (Court); id. at
27:25-68:8 (Court). The Defendants countered that the
studies, which the Plaintiffs present, do not stand for the
proposition that the Plaintiffs suggest that they support.
See July Tr. at 68:13-19 (Schultz). The Plaintiffs
rejoined that, although they cite only one study in their
Amended Complaint, there are numerous studies supporting
their position and that they will file those studies with the
Court. See July Tr. at 74:7-16 (Wolchansky).
Continued Oral Argument.
21, 2017, the Plaintiffs filed a Notice of Filing Hearing
Exhibit, filed July 21, 2017 (Doc.125), which includes their
Continued Oral Argument on Defendants' Motion to Dismiss,
see Continued Oral Argument on Defendant's
Motion to Dismiss, filed July 21, 2017 (Doc.
125-1)(“Cont. Arg.”). The Plaintiffs argue that a
2016 study supports their argument that Natural American
cigarettes' disclaimers ineffectively warn consumers.
See Cont. Arg. at 3 (citing Misperceptions,
at 1-4). The Plaintiffs explain that the study concludes that
many Natural American cigarette smokers believe that Natural
American cigarettes are less harmful than other cigarettes,
and, thus, the disclaimer ineffectively corrects
consumers' perceptions. See Cont. Arg. At 3-4
(noting that 63.9 percent of Natural American cigarette
smokers believe their brand is less harmful). The Plaintiffs
also cite a 2007 study for the proposition that
“consumers frequently conclude ‘natural'
cigarettes must be healthier, and tobacco companies have
understood this for decades.” Cont. Arg. at 4 (citing
Patricia McDaniel & Ruth E. Malone, I Always Thought
they were all Pure Tobacco: American Smokers' Perceptions
of “Natural” Cigarettes and Tobacco Industry
Advertising Strategies, 16 Tobacco Control e7 (2007),
They continue that a 2004 survey demonstrates that sixty
percent of smokers think that removing additives makes
cigarettes safer. See Cont. Arg. at 5 (citing K.M.
Cummings, Are Smokers Adequately Informed About the
Health Risks of Smoking and Medicinal Nicotine?,
Nicotine & Tobacco Research 6(3): S333-340 (2004)). They
also aver that Reynolds American market research confirms
that consumers believe that the additive-free descriptor
conveys a safer or healthier message, and that a 2016 study
reveals that the “100% Additive Free” descriptor
communicates lower health risks to consumers. Cont. Arg. at
5. The Plaintiffs argue that, despite the healthier message
that consumers perceive from Natural American's natural
and additive-free descriptors, studies show that Natural
American cigarettes have higher ash and heavy-metal levels
than other cigarettes. See Cont. Arg. at 6.
Plaintiffs also argue that several cases, not previously
cited, support their position. See Cont. Arg. at 3,
10-19. For example, the Plaintiffs cite to Discount
Tobacco City & Lottery, Inc., 674 F.3d 509 (6th Cir.
2012), for the proposition that “naturalists
prefer” products with organic and natural labeling,
“because they believe the product confer health
advantages.” Cont. Arg. at 3 (citing Discount
Tobacco City & Lottery, Inc., 674 F.3d at 536). They
also argue that the United States Court of Appeals for the
Seventh Circuit has ruled that a literal falsehood is not
required for liability to attach. See Cont. Arg. at
10 (citing Suchanek v. Sturm Foods, Inc., 764 F.3d
750, 761 (7th Cir. 2014)(“[The district court] appears
to assume that a package cannot be misleading if it does not
contain literal falsehoods. But that is not the
law.”)(alterations in original)). The Plaintiffs also
argue that four federal district courts have determined that
a natural descriptor misleads a reasonable consumer.
See Cont. Arg. at 12-19 (citing Martin v.
Tradewinds Beverage Co., No. 16-9249, 2017 U.S. Dist.
LEXIS 72698 (C.D. Cal. Apr. 27, 2017)(Gutierrez, J.); In
re Frito-Lay N. Am., Inc., No. 12-2413, 2013 WL 4647512
(E.D.N.Y. Aug. 29, 2013)(Mauskopf, J.); Burton v. Hodgson
Mill, Inc., No. 16-1081, 2017 WL 1282882 (S.D. Ill. Apr.
6, 2017)(Reagan, J.); Segedie v. Hain Celestial Grp.
Inc., No. 14-5029, 2015 WL 2168374 (S.D.N.Y. May 7,
their unjust-enrichment claims, the Plaintiffs argue that
their allegations are viable in every state for various
reasons. See Cont. Arg. at 23. They argue that: (i)
it is premature to dismiss their unjust-enrichment claims at
the rule 12(b)(6) stage in Massachusetts, Michigan, North
Carolina, and Washington; (ii) their claims satisfy the
requisite elements in New Jersey and New York; (iii) their
Colorado claim may proceed as a restitution-based remedy;
(iv) no New Mexico statute expressly bars their New Mexico
claim; and (v) Ohio law allows the Plaintiffs to plead their
unjust-enrichment claim in the alternative. See
Cont. Arg. at 23. They also argue that, under New Jersey,
North Carolina, and Ohio unjust-enrichment law, they do not
need to show that the Defendants receive a direct benefit.
See Cont. Arg. at 26-28 (citing Metric
Constructors, Inc. v. Bank of Tokyo-Mitsubishi, Ltd., 72
Fed.Appx. 916, 921 (4th Cir. 2003)(unpublished); Stewart
v. Beam Global Spirits, 877 F.Supp.3d 192, 200 (D.N.J.
2012)(Hillman, J.)). Finally, the Plaintiffs assert that the
privity requirement does not bar their
breach-of-express-warranty claims in Florida, New York, and
Illinois, because the requirement is relaxed in packaging and
economic damage cases. See Cont. Arg. at 32-35.
Supplemental brief on the Memorandum of
November 29, 2017, the Defendants filed a supplemental brief
concerning the Memorandum of Agreement. See Santa Fe
Natural Tobacco Company's Supplemental Brief in Support
of Motion to Dismiss Responding to the Court's Question
Regarding Status of Agreement with FDA Regarding NAS Product
Labeling and Advertising, filed November 29, 2017 (Doc.
136)(“Supp. Brief on Mem.”). The Defendants argue
that they complied with the Memorandum of Agreement and are
no longer utilizing additive-free and natural on their
labeling, advertising, and promotional material except for
natural in the Natural American brand name. See
Supp. Brief on Mem. ¶ 6, at 3. They conclude that the
Memorandum of Agreement's paragraph two does not require
them to remove or recall products that still have the terms
natural and additive-free on them. See Supp. Brief
on Mem. ¶ 7, at 3.
REGARDING RULE 12(B)(6)
12(b)(6) of the Federal Rules of Civil Procedure authorizes a
court to dismiss a complaint for “failure to state a
claim upon which relief can be granted.” Fed.R.Civ.P.
12(b)(6). “The nature of a Rule 12(b)(6) motion tests
the sufficiency of the allegations within the four corners of
the complaint after taking those allegations as true.”
Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir.
1994). The Complaint's sufficiency is a question of law,
and, when considering a rule 12(b)(6) motion, a court must
accept as true all well-pled factual allegations in the
complaint, view those allegations in the light most favorable
to the nonmoving party, and draw all reasonable inferences in
the plaintiff's favor. See Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322
(2007)(“[O]nly if a reasonable person could not draw .
. . an inference [of plausibility] from the alleged facts
would the defendant prevail on a motion to dismiss.”);
Smith v. United States, 561 F.3d 1090, 1098 (10th
Cir. 2009)(“[F]or purposes of resolving a Rule 12(b)(6)
motion, we accept as true all well-pled factual allegations
in a complaint and view these allegations in the light most
favorable to the plaintiff.”)(citing Moore v.
Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006)).
complaint need not set forth detailed factual allegations,
yet a “pleading that offers labels and conclusions or a
formulaic recitation of the elements of a cause of
action” is insufficient. Ashcroft v. Iqbal,
556 U.S. at 678 (2009)(citing Bell Atl. Corp. v.
Twombly, 550 U.S. at 555). “Threadbare recitals of
the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Ashcroft v.
Iqbal, 556 U.S. at 678. “Factual allegations must
be enough to raise a right to relief above the speculative
level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).”
Bell Atl. Corp. v. Twombly, 550 U.S. at 555.
survive a motion to dismiss, a plaintiff's complaint must
contain sufficient facts that, if assumed to be true, state a
claim to relief that is plausible on its face. See Bell
Atl. Corp. v. Twombly, 550 U.S. at 570; Mink v.
Knox, 613 F.3d 995, 1000 (10th Cir. 2010). “A
claim has facial plausibility when the pleaded factual
content allows the court to draw the reasonable inference
that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. at 678
(citing Bell Atl. Corp. v. Twombly, 550
U.S. at 556). “Thus, the mere metaphysical possibility
that some plaintiff could prove some set of facts in support
of the pleaded claims is insufficient; the complainant must
give the court reason to believe that this plaintiff has a
reasonable likelihood of mustering factual support for these
claims.” Ridge at Red Hawk, LLC v. Schneider,
493 F.3d 1174, 1177 (10th Cir. 2007)(emphasis omitted). The
United States Court of Appeals for the Tenth Circuit has
“[P]lausibility” in this context must refer to
the scope of the allegations in a complaint: if they are so
general that they encompass a wide swath of conduct, much of
it innocent, then the plaintiffs “have not nudged their
claims across the line from conceivable to plausible.”
The allegations must be enough that, if assumed to be true,
the plaintiff plausibly (not just speculatively) has a claim
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.
2008)(citations omitted)(quoting Bell Atl. Corp. v.
Twombly, 550 U.S. at 570). See Gallegos v.
Bernalillo Cty. Board of Cty. Comm'rs, __ F.Supp.3d
__, 2017 WL 4402422, at *9 (D.N.M. 2017)(Browning, J.).
a party presents matters outside of the pleadings for
consideration, as a general rule ‘the court must either
exclude the material or treat the motion as one for summary
judgment.'” Brokers' Choice of America,
Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103 (10th
Cir. 2017)(quoting Alexander v. Oklahoma, 382 F.3d
1206, 1214 (10th Cir. 2004)). There are three limited
exceptions to this general principle: (i) documents that the
complaint incorporates by reference, see Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007); (ii) “documents referred to in the complaint if
the documents are central to the plaintiff's claim and
the parties do not dispute the documents' authenticity,
” Jacobsen v. Deseret Book Co., 287 F.3d at
941; and (iii) “matters of which a court may take
judicial notice, ” Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. at 322. See also
Brokers' Choice of America, Inc. v. NBC Universal,
Inc., 861 F.3d at 1103 (holding that the district court
did not err by reviewing a seminar recording and a TV episode
on a rule 12(b)(6) motion, which were “attached to or
referenced in the amended complaint” “central to
[the plaintiff's] claim, ” and “undisputed as
to their accuracy and authenticity”). “[T]he
court is permitted to take judicial notice of its own files
and records, as well as facts which are a matter of public
record.” Van Woudenberg v. Gibson, 211 F.3d
560, 568 (10th Cir. 2000), abrogated on other grounds by
McGregor v. Gibson, 248 F.3d 946, 955 (10th Cir. 2001).
Gee v. Pacheco, 627 F.3d 1178 (10th Cir. 2010), the
defendants “supported their motion with numerous
documents, and the district court cited portions of those
motions in granting the [motion to dismiss].” 627 F.3d
at 1186. The Tenth Circuit held that “[s]uch reliance
was improper” and that, even if “the district
court did not err initially in reviewing the materials, the
court improperly relied on them to refute Mr. Gee's
factual assertions and effectively convert the motion to one
for summary judgment.” Gee v. Pacheco, 627
F.3d at 1186-87. In other cases, the Tenth Circuit has
emphasized that, “[b]ecause the district court
considered facts outside of the complaint, however, it is
clear that the district court dismissed the claim under Rule
56(c) and not Rule 12(b)(6).” Nard v. City of Okla.
City, 153 Fed.Appx.. 529, 534 n.4 (10th Cir.
2005)(unpublished).In Douglas v. Norton, 167
Fed.Appx.. 698 (10th Cir. 2006)(unpublished), the Tenth
Circuit addressed an untimely filed charge with the Equal
Employment Opportunity Commission -- which the Court
analogized to a statute of limitations -- and concluded that,
because the requirement was not jurisdictional, the district
court should have analyzed the question under rule 12(b)(6),
and “because the district court considered evidentiary
materials outside of Douglas' complaint, it should have
treated Norton's motion as a motion for summary
judgment.” 167 Fed.Appx.. at 704-05.
Court has previously ruled that, when a plaintiff references
and summarizes statements from defendants in a complaint for
the purpose of refuting the statements in the complaint, the
Court cannot rely on documents the defendants attach to a
motion to dismiss which contain their un-redacted statements.
See Mocek v. City of Albuquerque, No. Civ. 11-1009,
2013 WL 312881, at *50-51 (D.N.M. Jan. 14, 2013)(Browning,
J.). The Court reasoned that the statements were neither
incorporated by reference nor central to the plaintiff's
allegations in the complaint, because the plaintiff only
cited the statements to attack their reliability and
truthfulness. See 2013 WL 312881, at *50-51. The
Court has also previously ruled that, when determining
whether to toll a statute of limitations in an action
alleging fraud and seeking subrogation from a defendant, the
Court may not use interviews and letters attached to a motion
to dismiss, which evidence that a plaintiff was aware of the
defendant's alleged fraud before the statutory period
expired, in the Court's ruling. See Great Am. Co. v.
Crabtree, No. 11-1129, 2012 WL 3656500, at *3, *22-23
(D.N.M. Aug. 23, 2012)(Browning, J.). The Court determined
that the documents did not fall within any of the Tenth
Circuit's exceptions to the general rule that a complaint
must rest on the sufficiency of its contents alone, as the
complaint did not incorporate the documents by reference, or
refer to the documents. See 2012 WL 3656500, at
*22-23; Mocek v. City of Albuquerque, No. 11-1009,
2013 WL 312881, at *50 (D.N.M. 2013)(Browning, J.)(refusing
to consider statements that were not “central to [the
other hand, in a securities class action, the Court has ruled
that a defendant's operating certification, to which
plaintiffs refer in their complaint, and which is central to
whether the plaintiffs' adequately alleged a loss, falls
within an exception to the general rule, so the Court may
consider the operating certification when ruling on the
defendant's motion to dismiss without converting the
motion into one for summary judgment. See Genesee Cty.
Emps.' Retirement Sys. v. Thornburg Mortg. Secs. Trust
2006-3, 825 F.Supp.2d 1082, 1150-51 (D.N.M.
2011)(Browning, J.); Mata v. Anderson, 760 F.Supp.2d
1068, 1101 (D.N.M. 2009)(Browning, J.)(relying on documents
outside of the complaint because they were “documents
that a court can appropriately view as either part of the
public record, or as documents upon which the Complaint
relies, and the authenticity of which is not in
dispute”); S.E.C. v. Goldstone, 952 F.Supp.2d
1060, 1217-18 (D.N.M. 2013)(Browning, J.)(considering, on a
motion to dismiss, electronic mail transmissions referenced
in the complaint as “documents referred to in the
complaint, ” which are “central to the
plaintiff's claim” and whose authenticity the
plaintiff did not challenge).
REGARDING JUDICIAL NOTICE OF DOCUMENTS WHEN RULING ON A
MOTION TO DISMISS
201 of the Federal Rules of Evidence allows a court to, at
any stage of the proceeding, take notice of
“adjudicative” facts that fall into one of two
categories: (i) facts that are “generally known within
the territorial jurisdiction of the trial court;” or
(ii) facts that are “capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned.” Fed.R.Evid. 201(b), (f).
“Adjudicative facts are simply the facts of the
particular case.” United States v.
Wolny, 133 F.3d 758, 764 (10th Cir. 1998)(quoting
Advisory Committee Notes to rule 201). A court has discretion
to take judicial notice of such facts, regardless whether
requested. See Fed.R.Evid. 201(c). On the other
hand, if a party requests that the court take judicial notice
of certain facts, and supplies the necessary information to
the court, judicial notice is mandatory. See
Fed.R.Evid. 201(d). Also, if the parties timely request an
opportunity to be heard, the Court must grant such an
opportunity “as to the propriety of taking judicial
notice and the tenor of the matter noticed.”
Fed.R.Evid. 201(e). That judicial notice may be taken during
any stage of the judicial proceeding includes the motion to
dismiss stage. See 21 B C. Wright & K. Graham,
Jr., Fed. Prac. & Proc. Evid. § 5110, at 294 &
n.17 (2d ed. 2005). Moreover, while ordinarily, a motion to
dismiss must be converted to a motion for summary judgment
when the court considers matters outside the Complaint,
see Fed.R.Civ.P. 12(d), matters that are judicially
noticeable do not have that effect, see Duprey v. Twelfth
Judicial Dist. Court, No. 08-0756, 2009 WL 2482171, at
*7 (D.N.M. July 27, 2009)(Browning, J.)(citing Grynberg
v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 n.1
(10th Cir. 2004)). Also, when considering a motion to
dismiss, “the court is permitted to take judicial
notice of its own files and records, as well as facts which
are a matter of public record.” Van Woudenberg v.
Gibson, 211 F.3d 560, 568 (10th Cir. 2000) abrogated
on other grounds, McGregor v. Gibson, 248 F.3d
946, 955 (10th Cir. 2001). The documents judicially noticed,
however, should not be considered for the truth of the
matters asserted therein. See Tal v. Hogan, 453 F.3d
1244, 1265 n.24 (10th Cir. 2006). The Court has previously
judicially noticed news publications and public filings with
the Securities and Exchange Commission. See S.E.C. v.
Goldstone, 952 F.Supp.2d at 1219-20; In re Thornburg
Mortg., Inc. Securities Litig., 2009 WL 5851089, at
*3-4. See also Gallegos v. Bernalillo Cty. Bd. of Cty.
Comm'rs, __ F.Supp.3d __, 2017 WL 4402422, at *18-19
(D.N.M. 2017)(Browning, J.)(ruling that the Court may take
judicial notice of state court orders); A.M ex rel.
Youngers v. New Mexico Dep't of Health, 117
F.Supp.3d 1220, 1232 n.6 (D.N.M. 2015)(Browning, J.).
VI, clause 2, of the Constitution provides that the United
States of America's laws “shall be the Supreme Law
of the Land; . . . any Thing in the Constitution or Laws of
any state to the Contrary notwithstanding.” U.S. Const.
art. VI, cl. 2. Consistent with the Supremacy Clause, the
Supreme Court has “long recognized that state laws that
conflict with federal law are ‘without
effect.'” Altria II, 555 U.S. at 75
(quoting Maryland v. Louisiana, 451 U.S. 725, 746
(1981)). The Supreme Court has summarized the following
situations in which preemption is likely to be found:
Pre-emption may be either expressed or implied, and is
compelled whether Congress' command is explicitly stated
in the statute's language or implicitly contained in its
structure and purpose. Absent explicit pre-emptive language,
we have recognized at least two types of implied pre-emption:
field pre-emption, where the scheme of federal regulation is
so pervasive as to make reasonable the inference that
Congress left no room for the States to supplement it, and
conflict pre-emption, where compliance with both federal and
state regulations is a physical impossibility, or where state
law stands as an obstacle to the accomplishment and execution
of the full purposes and objectives of Congress.
Gade v. Nat'l Solid Wastes Mgmt. Assoc., 505
U.S. 88, 98 (1992).
noted, preemption may be express or implied. See Gade v.
Nat'l Solid Wastes Mgmt. Assoc., 505 U.S. at 98.
When faced with express preemption -- where a statute
expressly states that it preempts certain areas of state law
-- a court must determine the scope of the preemption that
Congress intended. See Medtronic, Inc. v. Lohr, 518
U.S. 470, 485 (1996)(stating that “the purpose of
Congress is the ultimate touch-stone in every pre-emption
case”). “Congress may indicate preemptive intent
through a statute's express language or through its
structure and purpose.” Altria II, 555 U.S. at
77. When the preemption clause's text is susceptible to
more than one plausible reading, courts ordinarily
“accept the reading that disfavors pre-emption.”
Bates v. Dow Agrosciences, LLC, 544 U.S. 431, 449
(2005). Preemption arguments are analyzed under rule
12(b)(6), 12(c), or 56. See Fisher v. Halliburton,
667 F.3d 602, 609 (5th Cir. 2012); Harris v. Kellog Brown
& Root Servs., Inc., 724 F.3d 458, 464 n.1 (3d Cir.
express preemption's scope entails scrutinizing the
statutory text in light of two presumptions. First,
[i]n all pre-emption cases, and particularly in those in
which Congress has legislated . . . in a field which the
States have traditionally occupied, we start with the
assumption that the historic police powers of the States were
not to be superseded by the Federal Act unless that was the
clear and manifest purpose of Congress.
Medtronic, Inc. v. Lohr, 518 U.S. at 485. Second,
“[t]he purpose of Congress is the ultimate touchstone
in every pre-emption case.” Medtronic, Inc. v.
Lohr, 518 U.S. at 485.
Congress' intent, of course, primarily is discerned from
the language of the preemption statute and the statutory
framework surrounding it. Also relevant, however, is the
structure and purpose of the statute as a whole, as revealed
not only in the text, but through the reviewing court's
reasoned understanding of the way in which Congress intended
the statute and its surrounding regulatory scheme to affect
business, consumers, and the law.
Medtronic, Inc. v. Lohr, 518 U.S. at 486.
conflict preemption is found when it is impossible for a
private party to comply with both state and federal
requirements, see English v. General Elec. Co., 496
U.S. 72, 78-79 (1990), or where state law “stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress, ” Hines v.
Davidowitz, 312 U.S. 52, 67 (1941). “Pre-emptive
intent may also be inferred if the scope of the statute
indicates that Congress intended federal law to occupy the
legislative field, or if there is an actual conflict between
state and federal law.” Hines v. Davidowitz,
312 U.S. at 67 (citing Freightliner Corp. v. Myrick,
514 U.S. 280, 287 (1995)).
preemption is one form of implied preemption. Crosby v.
Nat'l Foreign Trade Council, 530 U.S. 363, 373
(2000)(holding that preemption is appropriate where the
challenged state law “stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress”); Pharm. Research and Mfrs.
of Am. v. Walsh, 538 U.S. 644, 679 (2003)(Thomas, J.,
concurring)(“Obstacle pre-emption turns on whether the
goals of the federal statute are frustrated by the effect of
the state law.”). The Supreme Court instructed that, in
obstacle preemption cases, “there is no federal
pre-emption in vacuo, without a constitutional text or a
federal statute to assert it.” P.R. Dep't of
Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495,
503 (1988). See Gade v. Nat'l Solid Wastes Mgmt.
Assoc., 505 U.S. at 98. A reviewing court must still
“examine the explicit statutory language and the
structure and purpose of the statute.”
Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138
(1990). In 2000, the Supreme Court decided Geier v. Am.
Honda Motor Co., 529 U.S. 861 (2000), which held, in a
five-to-four decision, that a federal regulation which
permitted, but did not require, airbags to be installed in
passenger vehicles preempted claims that a car was defective
because it lacked an airbag. See 529 U.S. at 874.
The majority found: “The rule of state tort law for
which petitioners argue would stand as an
‘obstacle' to the accomplishment of [the federal
regulation's] objective. And the statute foresees the
application of ordinary principles of preemption in cases of
actual conflict. Hence, the tort action is pre-empted.”
529 U.S. at 886. Justice Stevens, in dissent, expressed a
desire to eliminate obstacle preemption. He argued that the
presumption against preemption
[s]erves as a limiting principle that prevents federal judges
from running amok with our potentially boundless (and perhaps
inadequately considered) doctrine of implied conflict
pre-emption based on frustration of purposes -- i.e., that
state law is preempted if it stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress.
529 U.S. at 907-08 (Stevens, J., dissenting).
Supreme Court has begun to back away from finding implied
preemption based on an alleged conflict with the purposes
underlying federal regulations. In 2003, the Supreme Court
issued a unanimous decision in Sprietsma v. Mercury
Marine, 537 U.S. 51 (2002), rejecting implied conflict
preemption of state law claims that a boat engine was
defective because it lacked a propeller guard. See
537 U.S. at 70. In so doing, the Supreme Court considered and
rejected an argument that the Coast Guard's decision not
to adopt a regulation requiring propeller guards impliedly
preempted state-law claims, which inflicted liability for
lack of a propeller guard. See 537 U.S. at 65. It
The decision in 1990 to accept the subcommittee's
recommendation to take no regulatory action left the law
applicable to propeller guards exactly the same as it had
been before the subcommittee began its investigation. Of
course, if a state common-law claim directly conflicted with
a federal regulation promulgated under the Act, or if it were
impossible to comply with any such regulation without
incurring liability under state common law, pre-emption would
occur. This, however, is not such a case.
537 U.S. at 65.
Altria II, the Supreme Court again considered the
implied preemption doctrine and rejected the defendants'
obstacle-preemption argument that the FCLAA, preempted a
similar state act, Maine's Unfair Practices Act, Me. Rev.
Stat. Ann., Tit. 5, § 207 (2008). See 555 U.S.
Altria II, the plaintiffs filed suit against
defendant cigarette manufactures for deceptively marketing
their Marlboro and Cambridge Light cigarettes as containing
lower tar and nicotine to convey that their light cigarettes
were less harmful than regular cigarettes. See 555
U.S. at 73. The Supreme Court concluded that the FCLAA, which
forbids state law from requiring or prohibiting language with
respect to cigarette advertising and promotion, presented no
obstacle to the plaintiffs' lawsuit, because the federal
law ultimately regulated warning labels, and did not regulate
false or misleading statements. See 555 U.S. at
82-83. The Supreme Court also considered whether an FTC
guidance statement, which noted that “a factual
statement of the tar and nicotine content . . . would not
violate the FTC Act, ” impliedly preempted the
Plaintiffs' claims. 555 U.S. at 87. The Supreme Court
contemplated and rejected the cigarette manufacturers'
argument that the FTC's statement “authorized them
to use descriptors” such as “light or low tar,
” because the FTC statements did not require that
cigarette manufacturers disclose their tar and nicotine
yields, and the United States “Government itself
disavows any policy authorizing the use of light and low tar
descriptors.” 555 U.S. at 88. Moreover, the Supreme
Court determined that an FTC consent order that prevents the
cigarette manufacturers from using “light” and
“low tar” descriptors, unless they are
accompanied “by a clear and conspicuous disclosure of
the cigarettes' tar and nicotine content” does not
preempt the plaintiffs' claims, because “the decree
only enjoined conduct, ” and “a consent order is
in any event only binding on the parties to the
agreement.” 555. U.S. at 589 n.13. The Supreme Court
concluded, thus, that federal law and regulations did not
preempt the plaintiffs' state-law claims. See
555 U.S. at 90.
Wyeth v. Levine, 555 U.S. 555 (2009), six Justices
of the Supreme Court, including Justices Breyer and Kennedy,
who joined in the majority decision in Geier v. Am. Honda
Motor Co. rejected the plaintiff's two implied
preemption arguments -- impossibility preemption and obstacle
preemption. See Wyeth v. Levine, 555 U.S. at 581.
The Supreme Court held that
it is not impossible for Wyeth to comply with its state and
federal law obligations and that Levine's common-law
claims do not stand as an obstacle to the accomplishment of
Congress' purposes in the [Federal Food, Drug, and
Cosmetic Act, 21 U.S.C.A. §§ 301, 321, 331-337,
341-350, 361-364, and 381-399; 21 C.F.R. §
Wyeth v. Levine, 555 U.S. at 581. In so ruling,
Justice Stevens, writing for the majority, narrowly limited
Geier v. Am. Honda Motor Co. to its facts, noting
that the decision in that case is based on the substantive
regulation's “complex and extensive” history
at issue. 555 U.S. at 566. The Supreme Court rejected
obstacle preemption, stating: “If Congress thought
state-law suits posed an obstacle to its objectives, it
surely would have enacted an express pre-emption provision at
some point during the FDCA's 70-year history.” 555
U.S. at 609. Justice Stevens quoted Justice
O'Connor's explanation in Bonito Boats, Inc. v.
Thunder Craft Boats, Inc., 489 U.S. 141, 109 (1989):
“The case for federal pre-emption is particularly weak
where Congress has indicated its awareness of the operation
of state law in a field of federal interest, and has
nonetheless decided to stand by both concepts and to tolerate
whatever tension there is between them.” Wyeth v.
Levine, 555 U.S. at 575 (quoting Bonito Boats, Inc.
v. Thunder Craft Boats, Inc., 489 U.S. at 166-67). Of
particular import for the current status of implied obstacle
preemption is Justice Thomas' concurring opinion in
Wyeth v. Levine, in which he wrote:
I write separately, however, because I cannot join the
majority's implicit endorsement of far-reaching implied
pre-emption doctrines. In particular, I have become
increasingly skeptical of this Court's “purposes
and objectives” pre-emption jurisprudence. Under this
approach, the Court routinely invalidates state laws based on
perceived conflicts with broad federal policy objectives,
legislative history, or generalized notions of congressional
purposes that are not embodied within the text of federal
law. Because implied pre-emption doctrines that wander far
from the statutory text are inconsistent with the
Constitution, I concur only in the judgment.
555 U.S. at 583 (Thomas, J., concurring in the judgment).
Justice Thomas continued:
Under the vague and potentially boundless doctrine of
purposes and objectives preemption . . . the Court has
pre-empted state law based on its interpretation of broad
federal policy objectives, legislative history, or
generalized notions of congressional purposes that are not
contained within the text of federal law . . . Congressional
and agency musings, however, do not satisfy the Art. I,
§ 7 requirements for enactment of federal law and,
therefore, do not pre-empt state law under the Supremacy
555 U.S. at 587. Justice Thomas emphasized that, when
analyzing the federal statutes' or regulations'
preemptive effect, “[e]vidence of pre-emptive purpose
must be sought in the text and structure of the provision at
issue” to comply with the Constitution. 555 U.S. at 588
(citing CSX Transp., Inc. v. Easterwood,
507 U.S. 658, 664 (1993)).
the Supreme Court has put renewed emphasis on the presumption
against preemption. See Bates v. Dow Agrosciences,
LLC, 544 U.S. 431, 449 (2005). “In areas of
traditional state regulation, [the Supreme Court] assume[s]
that a federal statute has not supplanted state law unless
Congress has made such an intention clear and
manifest.” Bates v. Dow Agrosciences,
LLC, 544 U.S. at 449. If confronted with two plausible
interpretations of a statute, the court has “a duty to
accept the reading that disfavors pre-emption.”
Bates v. Dow Agrosciences, LLC, 544 U.S. at
449. See Wyeth v. Levine, 555 U.S. at 565;
Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 518
(1992)(plurality opinion). In Arizona v. United
States, 567 U.S. 387 (2012), the Supreme Court once
again emphasized the importance of clear Congressional intent
when applying obstacle preemption. See 567 U.S. at
398-99. The Supreme Court struck down provisions of an
Arizona immigration law that would penalize aliens who
sought, or engaged in, unauthorized employment, because it
“would interfere with the careful balance struck by
Congress with respect to unauthorized employment of
aliens.” 567 U.S. at 406. With Justice Kagan taking no
part in the consideration or decision of the case, writing
for a five-to-three majority, which included Chief Justice
Roberts and Justices Ginsburg, Breyer, and Sotomayor, Justice
Kennedy wrote: “The correct instruction to draw from
the text, structure, and history of [the Immigration Reform
and Control Act of 1986, 8 U.S.C. § 1101] is that
Congress decided it would be inappropriate to impose criminal
penalties on aliens who seek or engage in unauthorized
employment.” 567 U.S. at 406. The Supreme Court ruled
that Congressional intent was clear; Congress had considered
and rejected penalizing aliens who sought unauthorized
employment. See 567 U.S. at 405. Federal immigration
law therefore preempted the Arizona law that would have
penalized aliens seeking unauthorized employment, because it
would have created a penalty that Congress had clearly and
intentionally omitted. See 567 U.S. at 407.
Tenth Circuit has recognized federal preemption of state law
in three categories: (i) when a federal statute expressly
preempts state law (“express preemption”); (ii)
where Congress intends to occupy a field (“field
preemption”); and (iii) to the extent that a state law
conflicts with a federal law (“conflict
preemption”). Colo. Dept. of Pub. Health and
Env't., Hazardous Materials and Waste Mgmt. Div. v.
United States, 693 F.3d 1214, 1222 (10th Cir. 2012). As
the defendant in Colo. Dept. of Pub. Health and
Env't., Hazardous Materials and Waste Mgmt. Div. v.
United States, the United States invoked only conflict
preemption to dismiss Colorado's claims against it.
See 693 F.3d at 1222. “To avoid conflict
preemption, ‘it is not enough to say that the ultimate
goal of both federal and state law is the same. A state law
also is pre-empted if it interferes with the methods by which
the federal statute was designed to reach this goal.”
Chamber of Commerce v. Edmondson, 594 F.3d 742, 769
(10th Cir. 2010)(quoting Int'l Paper Co. v.
Ouellette, 479 U.S. 481, 494 (1987)(alterations,
citation omitted)). In Colo. Dept. of Pub. Health and
Env't., Hazardous Materials and Waste Mgmt. Div. v.
United States, the state of Colorado created a schedule
for the United States to follow in the destruction of
hazardous waste stored in the state, in an attempt to
prohibit the storage of hazardous waste within the state.
See 693 F.3d at 1223. The Tenth Circuit held that
the state statute creating this schedule conflicted with a
federal statute, which mandated a deadline for the
destruction of the materials. See 693 F.3d at 1224.
The Tenth Circuit reasoned that allowing Colorado to set a
deadline for the destruction of the materials would impede
the flexibility with which Congress had intended in its
deadline. See 693 F.3d at 1224. Because the Colorado
deadline would interfere with the method that Congress had
intended for the waste's disposal, the Tenth Circuit
concluded that the state law is in conflict with the federal
law, and therefore, that the federal law preempts
Colorado's schedule. See 693 F.3d at 1224.
REGARDING DIVERSITY JURISDICTION AND ERIE
Erie Railroad Co. v. Tompkins, 304 U.S. 64
(1938)(“Erie”), a federal district court
sitting in diversity applies “state law with the
objective of obtaining the result that would be reached in
state court.” Butt v. Bank of Am., N.A., 477
F.3d 1171, 1179 (10th Cir. 2007). Accord Mem. Hosp. v.
Healthcare Realty Trust Inc., 509 F.3d 1225, 1229 (10th
Cir. 2007). The Court has held that if a district court
exercising diversity jurisdiction cannot find a Supreme Court
of New Mexico “opinion that [governs] a particular area
of substantive law . . . [the district court] must . . .
predict how the Supreme Court of New Mexico would
[rule].” Guidance Endodontics, LLC v. Dentsply
Int'l., Inc., 708 F.Supp.2d 1209, 1224-25 (D.N.M.
2010)(Browning, J.). “Just as a court engaging in
statutory interpretation must always begin with the
statute's text, a court formulating an Erie
prediction should look first to the words of the state
supreme court.” Peña v. Greffet, 110
F.Supp.3d 1103, 1132 (D.N.M. 2015)(Browning,
J.). If the Court finds only an opinion from
the Court of Appeals of New Mexico, the Court
“certainly may and will consider the Court of
Appeal[s'] decision in making its determination, [but]
the Court is not bound by the Court of Appeal[s']
decision in the same way that it would be bound by a Supreme
Court decision.” Mosley v. Titus, 762
F.Supp.2d at 1332 (noting that where the only opinion on
point is “from the Court of Appeals,  the Court's
task, as a federal district court sitting in this district,
is to predict what the Supreme Court of New Mexico would do
if the case were presented to it”)(citing Wade v.
EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir.
2007)(explaining that, “[w]here no controlling state
decision exists, the federal court must attempt to predict
what the state's highest court would do, ” and
that, “[i]n doing so, it may seek guidance from
decisions rendered by lower courts in the relevant
state”)). The Court may also rely on Tenth Circuit
decisions interpreting New Mexico law. See Anderson
Living Trust v. WPX Energy Prod., LLC, 27 F.Supp.3d at
1243 & n.30. Ultimately, “the Court's task
is to predict what the state supreme court would do.”
Wade v. EMCASCO Ins. Co., 483 F.3d at 666.
Accord Mosley v. Titus, 762 F.Supp.2d at 1332
(citation omitted); Rimbert v. Eli Lilly & Co.,
577 F.Supp.2d 1174, 1188-89 (D.N.M. 2008)(Browning,
J.)(quoting Wade v. EMCASCO Ins. Co., 483 F.3d at
REGARDING ERIE AND THE RULES ENABLING ACT
diversity cases, the Erie doctrine instructs that federal
courts must apply state substantive law and federal
procedural law.” Racher v. Westlake Nursing Home
Ltd. P'ship, 871 F.3d 1152, 1162 (10th Cir.
2017)(“Racher”). “If a federal
rule of civil procedure answers the question in dispute, that
rule governs our decision so long as it does not
‘exceed statutory authorization or Congress's
rulemaking power.'” Racher, 871 F.3d at
1162 (quoting Shady Grove Orthopedic Assocs. v. Allstate
Ins. Co, 559 U.S. 393, 398 (2010)(“Shady
Grove”)). “When faced with a choice between
a state law and an allegedly conflicting federal rule,
” the Tenth Circuit “follow[s] the framework
described by the Supreme Court in Shady Grove, as
laid out by Justice Stevens in his concurring opinion.”
Racher, 871 F.3d at 1162. “First, the court
must decide whether the scope of the federal rule is
sufficiently broad to control the issue before the court,
thereby leaving no room for the operation of seemingly
conflicting state law.” Racher, 871 F.3d at
1162 (citations and quotations omitted). There is a conflict
between federal and state law if there is a “direct
collision” that is “unavoidable, ” but
there is no collision if the state and federal rules
“can exist side by side . . . each controlling its own
sphere of coverage.” Racher, 871 F.3d at 1163
(citations omitted). If there is no direct collision,
“there is no need to consider whether the federal rule
is valid, and instead, the analysis must proceed under
Erie.” Racher, 871 F.3d at 1163. If
there is a direct collision, a court must follow the federal
rule if it is a valid exercise of the Supreme Court's
authority pursuant to the Rules Enabling Act, i.e.,
it must “not abridge, enlarge or modify a substantive
right.” 28 U.S.C. § 2072(b). See Racher,
871 F.3d at 1163-64. A state law is substantive if after
examining “the language and policy of the rule in
question . . . the primary objective is directed to
influencing conduct through legal incentives, ” and a
state law is procedural if the law's purpose is to
“achiev[e] fair, accurate, and efficient resolutions of
disputes.” Sims v. Great American Life Ins.
Co., 469 F.3d 870, 883 (10th Cir. 2006). See Leon v.
FedEx Ground Package Sys., Inc., 313 F.R.D. 615, 641
(D.N.M. 2016)(Browning, J.). The Tenth Circuit recently
added: “If a state law ‘concerns merely the
manner and means' by which substantive rights are
enforced, it is procedural, but if its application would
‘significantly affect the result of litigation, it is
substantive.'” Racher, 871 F.3d at 1164
(quoting Guaranty Trust Co. v. York, 326 U.S. 99,
REGARDING SEVERANCE UNDER RULE 21
district court may sever a case under Rule 21 to
“transfer one action while retaining jurisdiction over
the other.” Chrysler Credit Corp. v. Country
Chrysler, Inc., 928 F.2d 1509, 1519 (10th Cir.
1991)(citing Wyndham Assoc. v. Bintliff, 398 F.2d
614, 618 (2d Cir.1968)). Courts are mindful of judicial
efficiency concerns, however, and might not sever and
transfer a case when doing so results in two venues hearing
virtually the same case based on the same set of facts.
See, e.g., Gallery House, Inc. v.
Yi, 587 F.Supp. 1036, 1039-40 (N.D.Ill.1984)(“When
the most efficient administration of justice in a copyright
infringement action compelled the continuation of the action
against both defendants in a single forum, severance of the
claim against one defendant as to whom transfer would have
been permissible was inappropriate.”).
[T]he court must weigh carefully whether the inconvenience of
splitting the suit outweighs the advantages to be gained from
the partial transfer [and] should not sever if the defendant
over whom jurisdiction is retained is so involved in the
controversy to be transferred that partial transfer would
require the same issue to be litigated in two cases.
Liaw Su Teng v. Skaarup Shipping Corp., 743 F.2d
1140, 1148 (5th Cir.1984), overruled on other
grounds by In re Air Crash Disaster Near New Orleans,
La.. on July 9, 1982, 821 F.2d 1147 (5th Cir.1987). When
the granting of a motion to sever and transfer claims would
require two separate sets of discovery proceedings with
regard to events surrounding a single [event], and when the
moving defendants were alleged to have acted singly and in
concert with other defendants in the commission of securities
law violations, severance prior to the completion of
discovery was denied. Sec. & Exchange Comm'n v.
Nat'l Student Mktg. Corp., 360 F.Supp. 284, 296
(D.D.C. 1973)(Parker, J.).
REGARDING THE FIRST AMENDMENT
shall make no law . . . abridging the freedom of
speech.” U.S. Const. amend. I. This clause -- the Free
Speech Clause -- may act as a shield to liability in
instances where otherwise illegal or unlawful conduct
implicates a party's freedom of speech. See Marsh v.
Alabama, 326 U.S. 501, 509 (1946)(ruling that the Free
Speech clause shielded a Jehovah's witness who
distributed religious material on a company town's
sidewalk from criminal trespass charges). “It is, of
course, commonplace that the constitutional guarantee of free
speech is a guarantee only against abridgment by government,
federal or state.” Hudgens v. N.L.R.B, 424
U.S. 507, 513 (1976). State action, thus, is typically a
prerequisite for First Amendment protections. See Hudgens
v. N.L.R.B, 424 U.S. at 520-21.
The First Amendment and State Action.
most of American history, enforcing the common law was not
thought to implicate state action. See Daniel J.
Solove & Neil M. Richards, Rethinking Free Speech and
Civil Liability, 109 Colum. L. Rev. 1650, 1656 (2009).
In Coppage v. Kansas, 236 U.S. 1, 17 (1915), the
Supreme Court ruminated:
[I]t is self evident that, unless all things are held in
common, some persons must have more property than others, it
is from the nature of things impossible to uphold freedom of
contract and the right of private property without at the
same time recognizing as legitimate those inequalities of
fortune that are the necessary result of the exercise of
Coppage v. Kansas, 236 U.S. at 17 overruled in
part Phelps Dodge Corp. v. N.L.R.B., 313 U.S. 177, 187
(1941). After the New Deal, the state action doctrine
underwent a radical transformation, and the Supreme Court
ruled that various judicial actions amounted to state action
where, previously, those actions likely would not have.
See Shelley v. Kraemer, 334 U.S. 1, 18-19
(1948)(ruling that judicial enforcement of racially
restrictive covenants is state action); New York Times
Co. v. Sullivan, 376 U.S. 254, 265 (1964)(holding that
state adjudication of a libel lawsuit is state action);
Cohen v. Cowles Media Co., 501 U.S. 663, 668
(1991)(“Our cases teach that the application of state
rules of law in state courts in a manner alleged to restrict
First Amendment freedoms constitutes ‘state
action'”). In Shelley v. Kraemer, the
Supreme Court explained:
The short of the matter is . . . the action of the States to
which the [Fourteenth] Amendment has reference, includes
action of state courts and state judicial officials.
Although, in construing the terms of the Fourteenth
Amendment, differences have from time to time been expressed
as to whether particular types of state action may be said to
offend the Amendment's prohibitory provisions, it has
never been suggested that state court action is immunized
from the operation of those provisions simply because the act
is that of the judicial branch of the state government.
334 U.S. at 18. Thus, as the Supreme Court has recently
reaffirmed, the Free Speech Clause “can serve as a
defense in state tort suits.” Snyder v.
Phelps, 562 U.S. 443, 451 (2011). See N.A.A.C.P. v.
Claiborne Hardware Co., 458 U.S. 886 n.51
(1982)(“Although this is a civil lawsuit between
private parties, the application of state rules of law by the
Mississippi state courts in a manner alleged to restrict
First Amendment freedoms constitutes ‘state action'
under the Fourteenth Amendment.”)
state action doctrine as applied to judicial enforcement of
statutory and common-law claims has limits. See
Solove & Richards, Rethinking Free Speech and Civil
Liability, 109 Colum. L. Rev. at 1664. For example, the
Supreme Court has limited the same state action rationale in
the property-law context. See Hudgens v. N.L.R.B.,
424 U.S. at 513; Lloyd Corp., Ltd. v. Tanner, 407
U.S. 551, 570 (1972). In Hudgens v. N.L.R.B., the
Supreme Court considered whether the First Amendment
protected union members picketing in a privately owned
shopping center from a threat of criminal trespass charges.
See Hudgens v. N.L.R.B., 424 U.S. at 508. In
considering that issue, the Supreme Court explained:
It is, of course, a commonplace that the constitutional
guarantee of free speech is a guarantee only against
abridgement by government, federal or state. Thus, while
statutory or common law may in some situations extend
protection or provide redress against a private corporation
or person who seeks to abridge the free expression of others,
no such protection or redress is provided by the Constitution
Hudgens v. N.L.R.B., 424 U.S. at 513 (citation
omitted). In ruling that the First Amendment did not apply,
the Supreme Court emphasized that: “In addressing this
issue, it must be remembered that the First and Fourteenth
Amendments safeguard the rights of free speech and assembly
by limitations on State action, not on action by the owner of
private property used nondiscriminatorily for private
purposes only.” Hudgens v. N.L.R.B., 424 U.S.
at 519 (quoting Lloyd Corp., Ltd. v. Tanner, 407
U.S. at 567). See Central Hardware Co. v. N.L.R.B.,
407 U.S. 539, 547 (1972)(“The First and Fourteenth
Amendments are limitations on state action, not action by the
owner of private property used only for private
purposes.”). The Supreme Court concluded, thus, that
the First Amendment offered no protection to the picketers,
because the shopping center was a private entity and not
“the functional equivalent of a municipality.”
Hudgens v. N.L.R.B., 424 U.S. at 520.
Supreme Court has also stated that private party conduct may
be deemed state action when the “conduct allegedly
causing the deprivation of a federal right may be fairly
attributable to the State.” Lugar v. Edmondson Oil
Co., Inc., 457 U.S. 922, 937 (1982). Whether the conduct
may in fact be “fairly attributed” to the state
requires a two-part inquiry. “First, the deprivation
must be caused by the exercise of some right or privilege
created by the State or by a rule of conduct imposed by the
state or by a person for whom the State is
responsible.” Lugar v. Edmondson Oil Co.,
Inc., 457 U.S. at 937. “Second, the party charged
with the deprivation must be a person who may fairly be said
to be a state actor.” Lugar v. Edmondson Oil Co.,
Inc., 457 U.S. at 937. See West v. Atkins, 487
U.S. 42, 48 (1988)(explaining that, to state a claim under
§ 1983, the plaintiff must show: (i) deprivation of a
right that the federal constitution or federal laws secure;
and (ii) that a person acting under color of state law caused
Lugar v. Edmondson Oil Co., Inc., the Supreme Court
explained that the two prongs merge when the claim is
“directed against a party whose official character is
such as to lend the weight of the State to his decisions,
” whereas they remain distinct when analyzing the
private parties' conduct. 457 U.S. at 937. The Lugar
v. Edmondson Oil Co., Inc. test's first prong --
that the deprivation of a right is attributable to the state
-- is satisfied when “the authority of state officials
. . . put the weight of the State behind [the]
Defendant's private decision.” 457 U.S. at 940. The
Supreme Court, in Lugar v. Edmondson Oil Co., Inc.,
further instructed that the second prong, identification of a
defendant as a state actor, may arise, “because he is a
state official, because he has acted together with or has
obtained significant aid from state officials, or because his
conduct is otherwise chargeable to the state.” 457 U.S.
Lugar v. Edmondson Oil Co., Inc., the Supreme Court
determined that the plaintiff's allegation that the
defendants unlawfully deprived the plaintiff of his property
without due process under state law failed to state a claim
under 42 U.S.C. § 1983. See 457 U.S. at 940.
The Supreme Court also held that the plaintiff's claim
alleging that the private parties had invoked a state statute
maliciously or without valid grounds did not give rise to
state action. See 457 U.S. at 940. Instead, that
claim amounted to nothing more than the private misuse or
abuse of a state statute. See 457 U.S. at 940-41.
private individual to be acting under color of state law, the
deprivation of a federal right “must be caused by the
exercise of some right or privilege created by the State or
by a rule of conduct imposed by the state or by a person for
whom the State is responsible, ” and “the party
charged with the deprivation must be a person who may fairly
be said to be a state actor . . . because he is a state
official, because he has acted together with or has obtained
significant aid from state officials, or because his conduct
is otherwise chargeable to the State.” Lugar v.
Edmondson Oil Co., 457 U.S. at 937.
Congress did not, in using the term “under the color of
state law, ” intend to subject private citizens, acting
as private citizens, to a federal lawsuit whenever they seek
to initiate a prosecution or seek a remedy involving the
judicial system. To hold otherwise would significantly
disregard one purpose of the state action requirement, which
is to “preserve[ ] an area of individual freedom by
limiting the reach of federal law and federal judicial
power.” Lugar, 457 U.S. at 936. . . . Instead,
in enacting § 1983, Congress intended to provide a
federal cause of action primarily when the actions of private
individuals are undertaken with state authority. See
Id. . . . Thus, absent more, causing the state, or an
arm of the state, to initiate a prosecution or serve process
is insufficient to give rise to state action.
How v. City of Baxter Springs, 217 Fed.Appx.. 787,
793 (10th Cir. 2007)(unpublished).
Tenth Circuit has described the determination of state action
as “particularly fact-sensitive, so the circumstances
must be examined in their totality.” Marcus v.
McCollum, 394 F.3d 813, 819 (10th Cir. 2004). According
to the Tenth Circuit, “[t]he Supreme Court has
counseled us that the state action inquiry, although a legal
determination to be made by the court, [see Gilmore v.
City of Montgomery, 417 U.S. 556, 570 (1974), ] requires
the ‘sifting [of] facts and weighing [of]
evidence.'” Phelps v. Wichita
Eagle-Beacon, 886 F.2d 1262, 1271 (10th
Cir.1989)(quoting Burton v. Wilmington Parking
Auth., 365 U.S. 715, 722(1961)). In Gilmore v. City
of Montgomery, the Supreme Court ruled that, although it
was the Court's role to determine whether the use of
zoos, museums, parks, and other recreational facilities by
private school groups and private non-school organizations
“involved government so directly in the actions of
those users as to warrant court intervention on
constitutional grounds, ” the factual record before the
Supreme Court “[did] not contain sufficient facts upon
which to predicate legal judgments of this kind.” 417
U.S. at 570.
other hand, leaving the determination of state action to the
jury has shown to be ill-advised. The cases in which the acts
of private entities have been held to constitute state action
or to be under color of law, and cases in which they have
not, tend to be distinguished “by fine shadings in the
sometimes complex interrelationships that develop between the
state and private bodies.” Adams v. Vandemark,
787 F.2d 588, 1986 WL 16606, at *2 (6th
Cir.1986)(unpublished). In Adams v. Vandemark, the
United States Court of Appeals for the Sixth Circuit reviewed
a jury instruction from the United States District Court for
the Eastern District of Michigan, instructing the jury on
when to find state action. 1986 WL 16606, at *1. The Sixth
Circuit concluded that the few words that were given to the
jury on when to find state action “gave the jury little
to guide it in making its determination on this crucial
element of the claim for relief.” 1986 WL 16606, at *2.
The Sixth Circuit noted that the application of the state
action test is a “very difficult and complex
question, ” and, “[t]o the extent a jury is to
decide upon the proper factual predicates for this
essentially legal determination, it must be given
instructions that are clear, precise and informative as to
the factors involved and the factual issues to be
determined.” 1986 WL 16606, at *2. The Sixth Circuit
found that the defendants were entitled to a new trial,
because the jury was given no direction that could have
enabled it to make the necessary underlying factual
determination regarding state action. See 1986 WL
16606, at *2-3.
Supreme Court has articulated four different tests for courts
to use in determining whether conduct by an otherwise private
party is state action: (i) the public-function test; (ii) the
nexus test; (iii) the symbiotic-relationship test; and (iv)
the joint-action test. See Johnson v. Rodrigues
(Orozco), 293 F.3d 1196, 1202-03 (10th Cir.
2002)(reviewing the various tests); Gallagher v. Neil
Young Freedom Concert, 49 F.3d 1442, 1447 (10th
Cir.1995)(noting that “[a]pplication of the state
action doctrine has been characterized as one of the more
slippery and troublesome areas of civil rights
litigation”)(internal quotation marks omitted)). Under
the public-function test, a court determines whether a
private party has exercised “powers traditionally
exclusively reserved to the State.” Jackson v.
Metro. Edison Co., 419 U.S. 345, 352 (1974). The
public-function test is difficult to satisfy, because while
many functions may be traditionally governmental, few are
“exclusively” governmental functions, as the test
requires. Gallagher v. Neil Young Freedom Concert,
49 F.3d at 1456. The courts have found exclusive government
functions to include holding elections, performing necessary
municipal functions, and running a nursing facility. See
Johnson v. Rodrigues (Orozco), 293 F.3d at 1203.
the nexus test, state action is present if the state has
ordered the private conduct, or “exercised coercive
power or has provided such significant encouragement, either
overt or covert, that the choice must in law be deemed to be
that of the State.” Blum v. Yaretsky, 457 U.S.
991, 993 (1982). A court determines, under the nexus test,
whether there is a sufficiently close nexus between the state
and the challenged conduct, such that the conduct “may
be fairly treated as that of the state itself.”
Jackson v. Metro. Edison Co., 419 U.S. at 351.
“Private use of state-sanctioned private remedies or
procedures does not rise to the level of state action. . . .
But when private parties make use of state procedures with
the overt, significant assistance of state officials, state
action may be found.” Tulsa Professional Collection
Servs., Inc. v. Pope, 485 U.S. 478, 486 (1988)(internal
the symbiotic-relationship test, state action is present if
the state “has so far insinuated itself into a position
of interdependence” with a private party that “it
must be recognized as a joint participant in the challenged
activity.” Burton v. Wilmington Parking
Authority, 365 U.S. 715, 725, (1961). “[E]xtensive
regulation, receipt of substantial state funds, and the
performance of important public functions do not necessarily
establish the kind of symbiotic relationship between the
[state] and a private [party] that is required for state
action.” Gallagher v. Neil Young Freedom
Concert, 49 F.3d at 1451.
The applicable decisions clearly establish no bright-line
rule for determining whether a symbiotic relationship exists
between a government agency and a private entity. Questions
as to how far the state has insinuated itself into the
operations of a particular private entity and when, if ever,
the operations of a private entity become indispensable to
the state are matters of degree.
Gallagher v. Neil Young Freedom Concert, 49 F.3d at
action exists under the joint-action test if the private
party is a “willful participant in joint action with
the State or its agents.” Dennis v. Sparks,
449 U.S. 24, 27 (1980). Courts look to “whether state
officials and private parties have acted in concert in
effecting a particular deprivation of constitutional
rights.” Gallagher v. Neil Young Freedom
Concert, 49 F.3d at 1453. “[I]f there is a
substantial degree of cooperative action between state and
private officials . . . or if there is overt and significant
state participation, in carrying out the deprivation of the
plaintiff's constitutional rights, state action is
present.” Gallagher v. Neil Young Freedom
Concert, 49 F.3d at 1454 (internal quotation marks and
citations omitted). Joint participation can also take the
form of a conspiracy between public and private actors; in
such cases, the plaintiff must show that the public and
private actors shared a common, unconstitutional goal.
See Sigmon v. CommunityCare HMO, Inc., 234 F.3d
1121, 1126 (10th Cir. 2000). Even a conspiracy claim requires
a sufficient level of state involvement to constitute joint
participation in the unconstitutional actions. See Soldal
v. Cook Cty., 506 U.S. 56, 60 n.6 (1992). The Tenth
Circuit has previously dismissed constitutional claims
against a private individual where the plaintiff did not give
specific facts showing a conspiracy evidencing state action.
See Martinez v. Winner, 771 F.2d 424, 445 (10th
Cir.1985)(“Beyond the bare conclusory allegation that
[the defendant], a private citizen, conspired with the other
defendants to deprive plaintiff of his constitutional and
civil rights, no facts are stated indicating that [the
defendant] did anything.”).
Gallagher v. Neil Young Freedom Concert, the Tenth
Circuit surveyed several instances in which courts have found
action “under color of state law” where
governmental and private parties have acted together in
We have applied the joint action test in several cases
involving allegations that private citizens acted in concert
with police officers in making arrests. In both Carey v.
Continental Airlines Inc., 823 F.2d 1402 (10th Cir.
1987), and Lee v. Town of Estes Park, 820 F.2d 1112
(10th Cir. 1987), we held that citizens who made complaints
to police officers that resulted in arrests were not state
actors. We found nothing in the record in either case from
which we could infer that the allegedly unconstitutional
arrests “resulted from any concerted action, whether
conspiracy, prearranged plan, customary procedure, or policy
that substituted the judgment of a private party for that of
the police or allowed a private party to exercise state
power.” Carey, 823 F.2d at 1404. In both
cases, the record indicated that the police officers had made
an independent decision to make the challenged arrest. In
contrast, in Lusby v. T.G. & Y. Stores, Inc.,
749 F.2d 1423, 1429 (10th Cir. 1984), cert. denied,
474 U.S. 818, 106 S.Ct. 65, 88 L.Ed.2d 53 (1985), we
concluded that a store security guard who reported a
suspected shoplifter to the police was a state actor. We
noted that the officer that made the arrest did not make an
independent investigation but relied on the judgment of the
security guard. In Coleman v. Turpen, 697 F.2d 1341
(10th Cir. 1982) (per curiam), we applied the joint action
test by focusing on the manner in which the alleged
constitutional deprivation was carried out. There, the
plaintiff challenged the seizure and sale of his property and
named as defendants not only state officials but also the
wrecking company that towed his truck and subsequently sold
it. We found the company to be a state actor because it had
“jointly participated in seizing the truck by towing it
away” and because the company's sale of the
plaintiff's property was “an integral part of the
deprivation.” Id. at 1345.
Gallagher v. Neil Young Freedom Concert, 49 F.3d at
1453-56. The Tenth Circuit noted that, “just as with
the other tests for state action, the mere acquiescence of a
state official in the actions of a private party is not
sufficient.” 49 F.3d at 1453. The Tenth Circuit ruled
that the joint-action test can be satisfied where police are
involved in cooperative action with a private party when
“the police have substantially assisted in the
allegedly wrongful conduct.” 49 F.3d at 1455. Joint
participation typically arises when the authorities agree to
facilitate private parties' acts that, if a state
conducted, would be unconstitutional, through affirmative
action. See Soldal v. Cook Cty., 506 U.S. at 60 n.4.
Supreme Court's First Amendment decisions create a rough
hierarchy in the constitutional protection of speech. See
Snyder v. Phelps, 562 U.S. at 452; R.A.V. v. St.
Paul, 505 U.S. 377, 422 (1992)(Stevens, J. dissenting).
“Core political speech occupies the highest, most
protected position; commercial speech and nonobscene,
sexually explicit speech are regarded as a sort of
second-class expression; obscenity and fighting words receive
the least protection of all.” R.A.V. v. St.
Paul, 505 U.S. at 422 (Stevens, J. dissenting).
Commercial speech is “speech that does no more than
propose a commercial transaction.” Va. State Bd. of
Pharmacy v. Va. Citizens Consumer Council,
Inc., 425 U.S. 748, 762 (1976). See Central
Hudson, 447 U.S. at 561(“The Commission's
order restricts only commercial speech, that is, expression
related solely to the economic interests of the speaker and
its audience.”). The following characteristics indicate
that speech is commercial speech: (i) if the speech is
contained in an advertisement; (ii) if it is made with an
economic motive; or (iii) if it refers to a specific product.
See Proctor & Gamble Co. v. Haugen, 222 F.3d
1262, 1274 (10th Cir. 2000). A representation, however, is
not automatically commercial speech because it contains one
or more of the preceding characteristics. See Proctor
& Gamble Co. v. Haugen, 222 F.3d at 1274.
Supreme Court, in Central Hudson, provided the
analytical framework to determine what kind of commercial
speech is entitled to First Amendment protection. See
Central Hudson, 447 U.S. at 564. It explained:
The First Amendment's concern for commercial speech is
based on the informational function of advertising.
Consequently, there can be no constitutional objection to the
suppression of commercial messages that do not accurately
inform the public about lawful activity. The government may
ban forms of communication more likely to deceive the public
than to inform it, or commercial speech related to illegal
Central Hudson, 447 U.S. at 563. The government has,
accordingly, the power to regulate deceptive or commercial
speech related to an illegal activity, but less power to
regulate lawful and non-misleading commercial speech. See
Central Hudson, 447 U.S. at 564. Before proceeding to
the Central Hudson balancing test, a court must
perform a threshold inquiry to determine whether the speech
is non-misleading and concerns lawful activity. See
Central Hudson, 447 U.S. at 566. “At the outset,
we must determine whether the expression is protected by the
First Amendment. For commercial speech to come within that
provision, it at least must concern lawful activity and not
be misleading.” Central Hudson, 447 U.S. at
566. See Revo v. Disciplinary Bd. of the Supreme
Court for the State of N.M., 106 F.3d 929, 932
(10th Cir. 1997)(“Revo”).
court determines that the speech is commercial, lawful, and
not deceptive, the Court proceeds to a three-part balancing
test. See Central Hudson, 447 U.S. at 564-66.
“If the communication is neither misleading nor related
to unlawful activity . . . we ask whether the asserted
governmental interest is substantial. . . . [W]e must [next]
determine whether the regulation directly advances the
governmental interest asserted, and whether it is not more
extensive than is necessary to serve that interest.”
Central Hudson, 447 U.S. at 564, 566. See
Revo, 106 F.3d at 932. The Tenth Circuit has expressed
the Central Hudson test in following manner:
As a threshold inquiry under Central Hudson, we must
determine whether the particular advertisement is protected
speech -- i.e., whether it concerns lawful activity
and is not misleading. If not, the speech may be freely
regulated. Protected commercial speech may also be regulated,
but only if the government can show that (1) it has a
substantial state interest in regulating the speech, (2) the
regulation directly and materially advances that interest,
and (3) the regulation is no more extensive than necessary to
serve the interest.
Revo, 106 F.3d at 932 (citations omitted).
“[T]he regulation may not be sustained if it provides
only ineffective or remote support for the government's
purpose.” Central Hudson, 447 U.S. at 565.
considering the threshold inquiry -- whether the speech
concerns lawful activity and is not misleading -- Supreme
Court jurisprudence has drawn distinctions between misleading
commercial speech, potentially misleading commercial speech,
and truthful commercial speech. See e.g., In
re R.M.J., 455 U.S. 191, 203
(1982). Misleading commercial speech may be
prohibited entirely without a Central Hudson
analysis. See In re R.M.J., 455 U.S. at
203. The Central Hudson balancing
test, however, applies when the speech is potentially
misleading or when it is truthful. See In re R.M.J.,
455 U.S. at 203. See also Revo, 106 F.3d at 933.
Potentially misleading speech occurs when “the
information also may be presented in a way that is not
deceptive.” In re R.M.J., 455 U.S. at 203.
Commercial speech is not “potentially misleading”
simply with the “rote invocation of the words”;
the party asserting that the speech is potentially misleading
must “point to . . . harm that is potentially real, not
purely hypothetical.” Ibanez v. Florida Dept. of
Business and Professional Regulation, Bd. of
Accountancy, 512 U.S. 136, 146 (1994). In contrast,
inherently misleading speech is “incapable of being
presented in a way that is not deceptive.”
Revo, 106 F.3d at 929. In Revo, for
example, the Tenth Circuit considered whether direct mailing
advertisements from a personal injury attorney
“inevitably convey a false message that soliciting
lawyers are more experienced, tougher, more skillful, and
better qualified than non-soliciting lawyers, notwithstanding
the fact that the letters themselves make no reference to
those attributes.” Revo, 106 F.3d at 933. The
Tenth Circuit concluded that the mailings could not be
inherently misleading, because the defendants
“offer[ed] no proof that some other qualified lawyer
who could superbly represent personal injury victims would
nevertheless be misleading potential clients simply by
sending a direct mail solicitation.” 106 F.3d at 933.
Thus, to determine whether speech is inherently misleading,
the proper inquiry is to consider whether there are any
circumstances under which the speech could be truthful; if it
could possibly be truthful, the speech is not inherently
misleading. See 106 F.3d at 933. When applying the
Central Hudson test, the Supreme Court and the Tenth
Circuit have identified several substantial governmental
interests in regulating speech. See Central Hudson,
447 U.S. at 568 (ruling that the government has a substantial
governmental interest in energy conservation); Florida
Bar v. Went For It, Inc., 515 U.S. 618, 625-26
(1995)(holding that “protecting the privacy and
tranquility of personal injury victims and their loved ones
against intrusive, unsolicited contact by lawyers” is a
substantial interest); Posadas de Puerto Rico Associates
v. Tourism Co. of Puerto Rico, 478 U.S. 328, 341
(“We have no difficulty in concluding that the Puerto
Rico Legislature's interest in the health, safety, and
welfare of its citizens constitutes a ‘substantial'
governmental interest.”); Utah Licensed Beverage
Ass'n v. Leavitt, 256 F.3d 1061, 1070 (10th Cir.
2001)(holding that promoting temperance and supplying revenue
are substantial governmental interests). The Supreme Court
has concluded, however, that “the Government's
interest in preserving state authority is not sufficiently
substantial to meet the requirements of Central
Hudson.” Rubin v. Coors Brewing, Co., 514
U.S. 476, 486 (1995). See Matal v. Tam, 137 S.Ct.
1744, 1764 (2017)(ruling that “preventing speech
expressing ideas that offend” is not a substantial
governmental interest); Bolger v. Youngs Drug Products
Corp., 463 U.S. 60, 70 (1983)(ruling that shielding
citizens from offensive speech is not a substantial
governmental interest); Utah Licensed Beverage Ass'n
v. Leavitt, 256 F.3d at 1070 (holding that protecting
nondrinkers from alcohol-related speech is not a substantial
state interest); U.S. West, Inc. v. F.C.C., 182 F.3d
1224, 1235 (10th Cir. 1999)(ruling that protecting
dissemination of private information “does not
necessarily rise to the level of a substantial state interest
under Central Hudson”). In the tobacco
context, the Supreme Court has recognized that there is a
substantial governmental interest in preventing minors from
using tobacco. See Lorillard Tobacco Co. v. Reilly,
533 U.S. 525, 555 (2001). “Unlike rational basis
review, the Central Hudson standard does not permit
[a court] to supplant the precise interests put forward by
the State with other suppositions.” Florida Bar v.
Went For It, Inc., 515 U.S. 618, 624
(1995)(quoting Edenfield v. Fane, 507 U.S. 761, 768
Hudson's third step -- determining whether the
speech restriction directly and materially advances the
asserted government interest -- requires more than just
“mere speculation or conjecture” that the speech
restriction will advance the interest. Lorillard Tobacco
Co. v. Reilly, 533 U.S. at 555. “[R]ather, a
governmental body seeking to sustain a restriction on
commercial speech must demonstrate that the harms it recites
are real and that its restriction will in fact alleviate them
to a material degree.” Lorillard Tobacco Co. v.
Reilly, 533 U.S. at 555 (quoting Greater New
Orleans, 527 U.S. 173, 188 (1999)). To satisfy the third
[w]e do not, however, require that “empirical data come
. . . accompanied by a surfeit of background information. . .
. [W]e have permitted litigants to justify speech
restrictions by reference to studies and anecdotes pertaining
to different locales altogether, or even, in a case applying
strict scrutiny, to justify restrictions based solely on
history, consensus, and “simple common sense.”
Lorillard Tobacco Co. v. Reilly, 533 U.S. at 555
(quoting Florida Bar v. Went For It, Inc., 515 U.S.
at 628). In Lorillard Tobacco Co. v. Reilly, for
example, the Supreme Court considered whether a regulation
prohibiting smokeless tobacco or cigar advertising within a
1, 000-foot radius of a school or playground directly
advances the governmental interest in preventing minors from
using tobacco. See 533 U.S. at 556-57. The tobacco
company argued, in part, that there is no link between the
regulation and the substantial governmental interest in
preventing minor tobacco use, because the government had only
identified a problem with underage cigarette smoking and not
a problem with smokeless tobacco use. See Lorillard
Tobacco Co. v. Reilly, 533 U.S. at 556-57. The company
further averred that the government could not prove that
there is a causal link between advertising and tobacco use.
See 533 U.S. at 557. After considering those
arguments, the Supreme Court concluded that the regulation
banning the advertising advances the governmental interest
identified, because many studies support the claim that
minors' smokeless tobacco use has increased, and other
studies demonstrate a link between advertising and a demand
for smokeless tobacco products. See 533 U.S. at
considering the final factor -- that the regulation is no
more extensive than necessary to serve the governmental
interest -- the Supreme Court has cautioned that it is not a
“least-restrictive-means requirement.” Board
of Trustees of the State University of New York v. Fox,
492 U.S. 469, 478 (1989). Rather, as “commercial speech
[enjoys] a limited measure of protection, commensurate with
its subordinate position in the scale of First Amendment
values, ” the “ample scope of regulatory
authority suggested . . . would be illusory if it were
subject to a least-restrictive-means requirement, which
imposes a heavy burden on the State.” Board of
Trustees of the State University of New York v. Fox, 492
U.S. at 477 (alteration in original).
What our decisions require is a “‘fit'
between the legislature's ends and the means chosen to
accomplish those ends, ” a fit that is not necessarily
perfect, but reasonable; that represents not necessarily the
single best disposition but one whose scope is “in
proportion to the interest served, ” that employs not
necessarily the least restrictive means but, as we have put
it in the other contexts discussed above, a means narrowly
tailored to achieve the desired objective.
Board of Trustees of State University of the New York v.
Fox, 492 U.S. at 480 (citations omitted).
is far different, of course, from the ‘rational
basis' test used for Fourteenth Amendment equal
protection analysis.” Board of Trustees of the
State University of New York v. Fox, 492 U.S. at 480.
There it suffices if the law could be thought to further a
legitimate governmental goal, without reference to whether it
does so at inordinate cost. Here we require the government
goal to be substantial, and the cost to be carefully
calculated. Moreover, since the State bears the burden of
justifying its restrictions, it must affirmatively establish
the reasonable fit we require.
Board of Trustees of the State University of New York v.
Fox, 492 U.S. at 480. See Utah Licensed
Beverage Ass'n v. Leavitt, 256 F.3d 1061, 1066
(10th Cir. 2001)(“Under Central Hudson, laws
restricting commercial speech are subject to an
‘intermediate' level of scrutiny.”).
Lorillard Tobacco Co. v. Reilly, for example, the
Supreme Court determined that a tobacco advertising ban
within 1, 000 feet of schools or playgrounds in Massachusetts
was not reasonably fitted to the legislature's goal --
preventing minors' tobacco use. See Lorillard
Tobacco Co. v. Reilly, 533 U.S. at 561. The
Lorillard Tobacco Co v. Reilly Court determined that
the ban was unreasonable, because, in effect, the ban would
“prevent advertising in 87% to 91% of Boston,
Worcester, and Springfield Massachusetts.”
Lorillard Tobacco Co. v. Reilly, 533 U.S. at 562.
The Supreme Court reasoned:
In some geographical areas, these regulations would
constitute nearly a complete ban on the communication of
truthful information about smokeless tobacco and cigars to
adult consumers. The breadth and scope of the regulations,
and the process by which the Attorney General adopted the
regulations, do not demonstrate a careful calculation of the
speech interests involved.
533 U.S. at 562. It concluded, therefore, that the government
“has failed to show that the outdoor advertising
regulations . . . are not more extensive than necessary to
advance the State's substantial interest in preventing
underage tobacco use.” Lorillard Tobacco Co. v.
Reilly, 533 U.S. at 565.
LAW REGARDING UNFAIR AND DECEPTIVE PRACTICES
California Unfair Competition Law, Cal. Bus. & Prof. Code
§ 17200 (“UCL”), prohibits “any
unlawful, unfair or fraudulent act or practice and unfair,
deceptive, untrue or misleading advertising.” Cal. Bus.
& Prof. Code § 17200. To bring suit under the UCL, a
consumer must demonstrate that she suffered injury in fact
and lost money or property as a result of the unfair
competition. See Kwikset Corp. v. Superior Court,
246 P.3d 877, 884 (Cal. 2011) “Under the statute
‘there are three varieties of unfair competition:
practices which are unlawful, unfair or
fraudulent.'” In re Tobacco II Cases, 207
P.3d 20, 29 (Cal. 2009). “[C]laims of deceptive
advertisements and misrepresentations” fall under the
fraudulent variety of unfair competition. In re Tobacco
II Cases, 207 P.3d at 29. “[T]o state a claim
under either the UCL or the false advertising law, based on
false advertising or promotional practices, ‘it is
necessary only to show that members of the public are likely
to be deceived.'” In re Tobacco II Cases,
207 P.3d at 29 (quoting Kasky v. Nike, Inc., 45 P.3d
243, 250 (Cal. 2002)). Whether the public is likely to be
deceived “is judged by the effect [the challenged
conduct] would have on a reasonable consumer, ” unless
“the challenged conduct targets a particular
disadvantaged or vulnerable group.” Puentes v.
Wells Fargo Home Mortg., 160 Cal.App.4th 638, 645
(2008)(citations omitted). See Ebner v. Fresh, Inc.,
838 F.3d 958, 965 (9th Cir. 2016); Quelimane Co. v.
Stewart Title Guaranty Co., 960 P.2d 513, 530 (Cal.
UCL action is equitable in nature; damages cannot be
recovered. . . . We have stated under the UCL,
“[p]revailing plaintiffs are generally limited to
injunctive relief and restitution.” In re Tobacco
II Cases, 207 P.3d at 29 (quoting Korea Supply Co.
v. Lockheed Martin Corp., 63 P.3d 937, 943 (Cal. 2003)).
liability is subject to a safe harbor. See Cel-Tech
Commc'ns, Inc. v. Los Angeles Cellular Telephone
Co., 973 P.2d 527, 551 (Cal.
1999)(“Cel-Tech”); Ebner v. Fresh,
Inc., 838 F.3d at 963. “To forestall an action
under the unfair competition law, another provision must
actually ‘bar' the action or clearly permit the
conduct.” Cel-Tech, 973 P.2d at 541.
“Conversely, the Legislature's mere failure to
prohibit an activity does not prevent a court from finding it
unfair.” Cel-Tech, 973 P.2d at 542.
“There is a difference between (1) not making an
activity unlawful, and (2) making that activity
lawful.” Cel-Tech, 973 P.2d at 541.
Colorado Consumer Protection Act, Colo. Rev. Stat.
§§ 6-1-101-115 (“CCPA”), prohibits
deceptive trade practices. See Colo. Rev. Stat.
§§ 6-1-105, 6-1-113. Relevant to this Memorandum
Opinion and Order, a deceptive trade practice occurs when
in the course of the person's business . . . the person:
(e) Knowingly makes a false representation as to the
characteristics, ingredients, uses, benefits, alterations, or
quantities of goods, food, services, or property;
(g) Represents that goods, food, services, or property are of
a particular standard, quality or grade . . . if he knows or
should know they are of another.
Colo. Rev. Stat. § 6-1-105(1)(e), (g). “A
plaintiff may satisfy the deceptive trade practices
requirement of section 6-1-105(1)(e) by establishing either a
misrepresentation or that the false representation had the
capacity or tendency to deceive, even if it did not.”
Rhino Linings USA, Inc. v. Roby Mountain Rhino Lining,
Inc., 62 P.3d 142, 147 (Colo. 2003)(en banc). A
misrepresentation is “a false or misleading statement
that induces the recipient to act or refrain from acting . .
. [and] is made ‘either with knowledge of its untruth,
or recklessly and willfully made without regard to its
consequences, and with an intent to mislead and deceive the
plaintiff.” Rhino Linings USA, Inc. v. Roby
Mountain Rhino Lining, Inc., 62 P.3d at 147 (quoting
Parks v. Bucy, 211 P.638, 639 (Colo. 1922)). To
establish liability under the CCPA, “any person,
” as Colo. Rev. Stat. § 6-1-102(6) defines, must
(1) that the defendant engaged in an unfair or deceptive
trade practice; (2) that the challenged practice occurred in
the course of defendant's business, vocation, or
occupation; (3) that it significantly impacts the public as
actual or potential consumers of the defendant's goods,
services, or property; (4) that the plaintiff suffered injury
in fact to a legally protected interest; and (5) that the
challenged practice caused the plaintiff's injury.
Hall v. Walter, 969 P.2d 224, 235 (Colo. 1998)(en
banc). See Alpine Bank v. Hubbell, 555 F.3d 1097,
1112 (10th Cir. 2009).
CCPA does not apply to “[c]onduct in compliance with
the orders or rules of, or a statute administered by, a
federal, state, or local governmental agency.” Colo.
Rev. Code § 6-1-106(1)(a). “The plain meaning of
the exclusion section of the [Colorado Consumer Protection
Act] is that conduct in compliance with other laws
will not give rise to a cause of action under section
6-1-106(1)(a).” Showpiece Homes Corp. v. Assurance
Co. of America, 38 P.3d 47, 56 (Colo. 2001)(en
banc)(emphasis in original). Only activities
“specifically authorized by a regulation or another
statute [are] exempt” from the safe harbor.
Showpiece Homes Corp. v. Assurance Co. of America,
38 P.3d at 56.
Florida Deceptive and Unfair Trade Practices Act, Fla. Stat.
§ 501.204 (“FDUTPA”), prohibits
“[u]nfair methods of competition, unconscionable acts
or practices, and unfair or deceptive acts or practices in
the conduct of any trade or commerce.” Fla. Stat.
§ 501.204. Trade or commerce includes “advertising
. . . or distributing . . . any good or service, or any
property . . . wherever situated.” Fla Stat. §
501.203. “[U]nder FDUTPA, the plaintiff must only
establish three objective elements: (1) a deceptive
act or unfair practice; (2) causation; and (3) actual
damages.” Carriuolo v. General Motors Co., 823
F.3d 977, 985-86 (11th Cir. 2016). See Soper v. Tire
Kingdom, Inc., 124 So.3d 804, 806 (Fla. 2013)(Canady, J.
dissenting)(“[C]onsumer claim[s] for damages under
FDUTPA . . . require proof of: (1) a deceptive or unfair
practice; (2) causation; and (3) actual damages.”).
FDUTPA has two distinct prongs: an unfair practice prong and
a deceptive prong. See PNR, Inc. v. Beacon
Property Management, Inc., 842 So.2d 773, 777 (Fla.
2003). An unfair practice is “one that ‘offends
established public policy' and one that is
‘immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers.'” PNR,
Inc. v. Beacon Property Management, Inc., 842 So.2d at
777. A deceptive practice “occurs if there is a
representation, omission, or practice that is likely to
mislead consumers acting reasonably in the circumstances, to
the consumers' detriment.” State v. Beach Blvd.
Automotive Inc., 139 So.3d 380 (Fla. Dist. Ct. App.
2014)(citing PNR, Inc. v. Beacon Property Management,
Inc., 842 So.2d at 777). See Zlotnick v. Premier
Sales Group, Inc., 480 F.3d 1281, 1284 (11th Cir. 2007).
FDUTPA does not apply to “[a]n act or practice required
or specifically permitted by federal or state law.” Fla
Stat. § 501.212(1).
Illinois Consumer Fraud and Deceptive Business Practices Act,
815 Ill. Comp. Stat. 505/2 (“ICFA”), prohibits
unfair or deceptive acts or practices, including but not
limited to the use . . . of any deception, fraud, . . .
misrepresentation or the concealment, suppression or omission
of any material fact, with intent that others rely upon the
concealment . . . in the conduct of any trade or commerce . .
. whether any person has in fact been misled, deceived or
815 Ill. Comp. Stat. 505/2. “[T]rade and commerce mean
the advertising, offering for sale, sale, or distribution of
any services and any property . . . and shall include any
trade or commerce directly or indirectly affecting the people
of this State.” 815 Ill. Comp. Stat. 505/(1)(f)
sustain a claim under the ICFA, a plaintiff must show
“(1) a deceptive act or practice by the defendant, (2)
the defendant's intent that the plaintiff rely on the
deception, (3) the occurrence of the deception in a course of
conduct involving trade or commerce, and (4) actual damage to
the plaintiff that is (5) a result of the deception.”
De Bouse v. Bayer, 922 N.E.2d 309, 313 (Ill. 2009).
See Philadelphia Indem. Ins. Co. v. Chicago
Title Ins. Co., 771 F.3d 391, 402 (7th Cir. 2014).
ICFA does not apply, however to “[a]ctions or
transactions specifically authorized by laws administered by
any regulatory body or officer acting under statutory
authority of this State or the United States.” 815 Ill.
Comp. Stat. 505/10b(1). “The plain language of section
10b(1) requires that two separate conditions be present
before a claim is barred.” Price v. Philip Morris,
Inc., 848 N.E.2d 1, 36 (Ill. 2005). “First, a
regulatory body or officer must be operating under statutory
authority.” Price v. Philip Morris, Inc., 848
N.E.2d at 36. “Second, liability under the Consumer
Fraud Act is barred by section 10b(1) only if the action or
transaction at issue is ‘specifically authorized by
laws administered' by the regulatory body.” 848
N.E.2d at 36 (quoting 815 Ill. Comp. Stat. 505/10b(1)). In
Price v. Philip Morris, the Supreme Court of
Illinois determined that the FTC's use of the terms
“low tar” and “ultra low tar” in its
reports to Congress, did not “specifically authorize
cigarette manufactures to use these terms in labeling or
advertising.” 848 N.E.2d at 36. “Conduct is not
specifically authorized merely because it has not been
specifically prohibited.” 848 N.E.2d at 36. Moreover,
“[c]onduct is not specifically authorized merely
because it has been passively allowed to go on for a period
of time without regulatory action being taken to stop
it.” 848 N.E.2d at 36. The proper inquiry, instead, is
to “look to the affirmative acts or expressions of
authorization by the FTC.” 848 N.E.2d at 36. The
Supreme Court of Illinois emphasized that “[t]he term
‘specifically' indicates a legislative intent to
require a certain degree of specificity or particularity in
the authorization, ” see 848 N.E.2d at 38, and
that “mere compliance with applicable federal
regulations is not necessarily a shield against liability
under the Consumer Fraud Act, ” 848 N.E.2d at 40. It
concluded, however, that a regulatory body “may
specifically authorize conduct . . . without engaging in
formal rulemaking” and that while authorization must be
specific “it need not be express.” 848 N.E.2d at
42. The Supreme Court of Illinois ruled, accordingly, that an
FTC consent order “specifically authoriz[ing] all
United States tobacco companies” to use “low,
” “lower, ” “reduced” and other
similar words “so long as the descriptive terms are
accompanied by a clear and conspicuous disclosure of the
‘tar' and nicotine content” barred a
plaintiff's claim under 815 Ill. Comp. Stat. 505/10b(1).
219 Ill.2d at 265-66.
Illinois Uniform Deceptive Trade Practices Act, 815 Ill.
Comp. Stat. 510/2 (“IUDTPA”), similarly prohibits
deceptive practices performed “in the course of his or
her business” that
(5) represents that goods or services have . . . benefits . .
. that they do not have;
(7) represents that goods or services are of a particular
standard [or] quality;
(9) advertises goods or services with intent not to sell them
as advertised; and
(12) engages in any other conduct which similarly creates a
likelihood of confusion ...