Citations
- 288 F. Supp. 3d 1087
Full opinion text
James O. Browning, UNITED STATES DISTRICT JUDGE
THIS 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, 2000 WL 783979 (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.
The 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.
FACTUAL BACKGROUND
The 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (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. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (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.").
Santa 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.
Reynolds 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.
Natural 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 US 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 21-22.
Natural 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 http://s2.q4cdn.com/129460998/files/doc_financials/2016/RAI-Q116-10-Q.pdf (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, at 22.
The 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 Agreement").
Neither 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 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4540633/). 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 (2003)).
Although 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.
PROCEDURAL BACKGROUND
The 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.
1. The Motion to Dismiss.
The 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.
Turning 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) ).
The 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.
The 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) ).
Second, 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, 131 S.Ct. 1207, 179 L.Ed.2d 172 (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, 100 S.Ct. 2343, 65 L.Ed.2d 341 (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.
The 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, 121 S.Ct. 2404, 150 L.Ed.2d 532 (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 Mfrs. Assoc. v. Sorrell, 102 F.Supp.3d 583 (D. Vt. 2015) (Reiss, C.J.)).
The 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.
Third, 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.
Fourth, 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).
The 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.
Fifth, 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.
Sixth, 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.
Seventh, 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 66.
Eighth, 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.
Ninth, 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.
Tenth, 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.
2. The Response .
The 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, 129 S.Ct. 538, 172 L.Ed.2d 398 (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.)).
The 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, 130 S.Ct. 2811, 177 L.Ed.2d 493 (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.
The 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, 129 S.Ct. 538 ). 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.
The 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.
The 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.
Addressing 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 2007) (Rice, J.)).
The 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.
The 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.
The 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.
Finally, 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.
3. The Reply.
On May 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. 07562, 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. § 6501(2) ).
Turning 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.
The 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 12(b)(6) motion, 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, 58 S.Ct. 817, 82 L.Ed. 1188 (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.
Turning 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, J.)).
The 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.
Regarding 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.
Finally, 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 40.
4. The June 9, 2017 Hearing.
The 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 (Biersteker).
The 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 (Reese).
The 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.
Turning 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). The 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).
The 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