Last Friday, the Ninth Circuit reversed a holding by the District Court for Southern District of California dismissing “All Natural” false advertising claims against Hain Celestial cosmetics because they were barred by the primary jurisdiction doctrine. The Court stated that dismissal of the claims was the improper result, even if the FDA did have primary jurisdiction to handle the all natural claims. Along the way, the Ninth Circuit also managed to make plaintiff-friendly rulings regarding FDA preemption and unjust enrichment claims.
All Natural Cosmetics?
Hain Celestial markets and sells cosmetics advertised as “All Natural,” “Pure Natural,” or “Pure, Natural & Organic.” Plaintiffs brought false advertising claims alleging that the cosmetics actually contained synthetic ingredients, including benzyl alcohol and airplane anti-freeze, making them “un-natural.”
Hain filed a motion to dismiss arguing first that the state law claims were preempted by the FDA or, in the alternative, that the claims should be dismissed based on the doctrine of primary jurisdiction. The lower court rejected the preemption argument, but ultimately dismissed the claims to allow the parties to seek expert guidance from the FDA as to the meaning of “All Natural.”
The primary purpose of the appeal was plaintiffs’ challenge to the lower court’s dismissal of the “All Natural” claims. Although the Court rejected plaintiffs’ more superficial challenges to the holding, it held that the “meat” of the claim, the dismissal of based on primary jurisdiction, was error.
Briefly, the doctrine of primary jurisdiction allows courts to decline to hear claims that have technical and policy questions that should otherwise be addressed by an agency that has regulatory authority over the industry. In other words, invoking the primary jurisdiction doctrine means that a court recognizes that some agency has more experience with and is better equipped to advise on resolution of the issue.
The Ninth Circuit first found that the district court did not err in the invocation of primary jurisdiction because “[d]etermining what chemical compounds may be advertised as natural on cosmetic product labels is ‘a particularly complicated issue that Congress has committed to’ the FDA.”
However, where the district court slipped up, according to the Ninth Circuit, was in dismissing the claims rather than issuing a stay of the proceedings until the FDA could weigh in. Chief among the Court’s concerns was that outright dismissal of the claims could prejudice plaintiffs, because the statute of limitations may run out on the claims before the FDA issues any advice.
All Natural Claims Are Not Preempted By The FDCA
As part of the appeal, Hain asked that the Court consider the preemption issue, even though the district court did not address it. Unfortunately for the defense bar, the Ninth Circuit agreed to analyze this “purely legal question” and found that there was no preemption.
Analyzing the issue, the Court considered the preemption language in section 379(s)(a) of the Food Drug and Cosmetic Act (“FDCA”), which states that a state or local government is prohibited from “establish[ing] or continu[ing] in effect any requirement for labeling or packaging of a cosmetic that is different from or in addition to, or that is otherwise not identical with” federal rules. In other words, the FDCA bars states from imposing new or additional labeling requirements that are not provided for in the FDCA.
Hain argued that plaintiffs imposed additional labeling requirements by attempting to regulate the definition of “All Natural,” because FDA has not specifically defined the statement. The Ninth Circuit disagreed, noting that plaintiffs were not “asking Hain to modify or enhance any aspect of its cosmetics labels,” but instead arguing that deception occurred because of statements contradicting the true ingredients on the FDA-mandated label. Removal of false or misleading claims from product labels is not, the Ninth Circuit held, inconsistent with federal rules.
The Ninth Circuit went on to hold that just because FDA has not defined a word or phrase does not mean a manufacturer may make any claim “wild, untruthful, or otherwise” about a product. The Court emphasized FDA guidance that all labels must be “truthful and not misleading,” reinforcing the Court’s conclusion that the “FDA did not intend to permit indiscriminate use of the word ‘natural’ on cosmetics labels.”
Unjust Enrichment Claim Can Proceed
The Court also reversed the lower court’s dismissal of plaintiffs’ quasi-contract claim, based on the district court’s finding that restitution “is not a standalone cause of action in California and is nonsensical as pled in any event.”
The Ninth Circuit acknowledged that unjust enrichment is not a standalone cause of action. However, the Court said that the cause of action (which is synonymous with restitution) is not “irrelevant” under California law because it identifies the theory that a defendant must return a benefit that has been obtained through fraud or mistake.
To that end, the Court said that judges had the option to construe an unjust enrichment claim as a “quasi-contract claim seeking restitution,” and that the claim need not automatically be dismissed.
Because plaintiffs pled they were entitled to relief under a “quasi-contract” cause of action, based on Hain’s alleged enticement of them to purchase the products through false and misleading advertising, the Court found they had sufficiently alleged a “quasi-contract” claim and reversed the dismissal.
This decision represents another example of courts giving class action plaintiffs the benefit of the doubt, especially when claim dismissal occurs at the pleading stage. We can expect to see an increased occurrence of unjust enrichment claims, as well as the continued trend of courts rejecting preemption claims.