Ottesen v. Hi-Tech Pharmaceuticals, Inc.

Background

Allison Ottesen, Sean Allen, and Lauren Accardi brought a proposed class action against Hi-Tech Pharmaceuticals, Inc. They alleged that Hi-Tech manufactured, distributed, and sold supplements containing DMHA, an ingredient they alleged was illegal and not generally recognized as safe. Their claims included breach of the implied warranty of merchantability, fraud, unjust enrichment, and violations of California’s Consumers Legal Remedies Act and Unfair Competition Law, as well as New York General Business Law § 349. They sought injunctive relief, damages, and restitution.

The Food and Drug Administration sent Hi-Tech a warning letter in 2019 concerning DMHA. The court had previously paused the case while awaiting the agency’s determination about DMHA, then lifted the pause after the agency stated on its website that DMHA was an unsafe food additive and that supplements containing it were adulterated. After the Ninth Circuit denied Hi-Tech’s request for an immediate appeal of the order lifting the pause, Hi-Tech filed the motion addressed in this order.

Personal Jurisdiction

The court exercised discretion to consider Hi-Tech’s personal-jurisdiction argument even though Hi-Tech had not raised it in its first motion to dismiss. The court concluded that it could not exercise personal jurisdiction over Allen’s and Accardi’s claims because those claims arose from out-of-state activities with no connection to California. It therefore dismissed their claims brought on their own behalf and on behalf of the New York subclass.

The court denied Hi-Tech’s request to dismiss claims asserted on behalf of unnamed, non-California members of the proposed nationwide class. The court held that such a request was premature before class certification because proposed class members are not parties until a class is certified.

Primary Jurisdiction

The court declined to apply the primary jurisdiction doctrine. That doctrine can allow a court to pause or dismiss a case while an agency addresses technical or policy questions within the agency’s expertise. The court concluded that the FDA had already addressed the relevant substantive issues concerning DMHA and that there was no indication that the agency would make further determinations.

Preemption

The court rejected Hi-Tech’s arguments that federal law preempted Ottesen’s state-law claims. The court found no express preemption because the claims were based on alleged violations of requirements identical to those in the federal Food, Drug, and Cosmetic Act. It also found no implied preemption because California’s Sherman Law exists independently of the federal law, even though it mirrors the federal requirements. The court further concluded that allowing the claims to proceed would be consistent with, rather than contrary to, the FDA’s determination about DMHA.

Standing

The court held that Ottesen adequately alleged an economic injury because she claimed that she would not have bought the supplements if Hi-Tech had disclosed that they contained an unsafe and illegal ingredient. The court declined to dismiss her nationwide class allegations at this stage, following its approach of addressing those issues during class certification.

The court did dismiss Ottesen’s request for injunctive relief. It concluded that she had not alleged that she wanted to buy Hi-Tech’s supplements in the future, while her claims asserted that she would not have bought them had she known they contained an unsafe stimulant. The court did not dismiss her claims concerning supplements she did not personally purchase, finding that the similarity of those products was an issue for class certification rather than standing.

Failure to State a Claim

The court denied Hi-Tech’s arguments that Ottesen failed to state her remaining claims. It held that her fraud-based claims under California’s consumer-protection laws and her common-law fraud claim adequately alleged that Hi-Tech omitted material information about DMHA’s safety and legality. The court also found that she adequately alleged Hi-Tech had a duty to disclose that information, that consumers could be deceived, and that she relied on the omission when purchasing the supplements.

The court held that Ottesen adequately stated the unlawful, unfair, and fraudulent theories of her California Unfair Competition Law claim. It also held that she adequately stated an unjust-enrichment claim because she adequately pleaded an actionable omission. Finally, the court held that the foodstuffs exception to California’s usual contractual-privity requirement applied to the supplements and that Ottesen adequately pleaded a breach of the implied warranty of merchantability, even without alleging physical injury.

Disposition

The court granted Hi-Tech’s motion to dismiss in part and denied it in part. It dismissed Allen’s and Accardi’s claims on behalf of themselves and the New York subclass for lack of jurisdiction, and dismissed Ottesen’s request for injunctive relief. The remainder of the motion to dismiss was denied. The court allowed Ottesen to file an amended complaint within 21 days, solely to correct the deficiencies identified in the order. The order does not state that the dismissals are with prejudice or without prejudice.