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Judge advances bellwether lawsuit against e-cigarette giant Juul’s corporate leaders

E-cigarette company Juul’s founders, board members and biggest investor, Altria, can’t duck a bellwether lawsuit claiming they conspired to deceive consumers about the addictive nature of vaping products.

SAN FRANCISCO (CN) — A sprawling class action over e-cigarette giant Juul’s marketing practices creeped closer to trial Thursday when a federal judge advanced conspiracy and fraud claims against the company’s founders, board members and its biggest investor.

U.S. District Judge William Orrick III refused to dismiss the bulk of claims filed by 19 bellwether plaintiffs from 14 states in an expansive multidistrict class action. The suit accuses Juul and its leaders of intentionally using deceptive ads and marketing campaigns to get young people hooked on vaping to create a new generation of nicotine addicts.

The plaintiffs range in age from 15 to 27 years old. Some say they got hooked on e-cigarettes at ages as young as 12 years old.

The plaintiffs say Juul failed to warn consumers that its e-cigarette products were highly addictive and that the company falsely claimed in ads and labels that its prefilled pods contained 5% nicotine, the same amount in a pack of cigarettes, when the pods actually contained much higher levels. They also say Juul fraudulently marketed its vaping products as a “safer alternative” to combustible cigarette smoking.

The young plaintiffs and their guardians sought to hold Juul, its corporate leaders and biggest investor Altria liable for fraud, negligence, negligent misrepresentation, strict product liability and medical monitoring, which entails covering the costs of future medical exams to detect latent health conditions.

Juul founders and top executives James Monsees and Adam Bowen asked Orrick to dismiss those claims against them, arguing they did not personally participate in the testing, design, marketing or sales of e-cigarettes.

In a 53-page ruling Thursday, Judge Orrick rejected that argument, finding the plaintiffs “adequately alleged that both Monsees and Bowen engaged in acts that had the intent and impact of misleading the public and plaintiffs about the dangers of JUUL.”

The judge mostly refused to let three Juul board members — Nicholas Pritzker, Hoyoung Huh and Riaz Valani — off the hook for claims of fraud and negligence, finding little merit in their argument that they had no direct role in the alleged wrongdoing.

“Plaintiffs have plausibly alleged sufficient facts regarding each of the [directors’]s positions on and control over the Board and management that allegedly allowed these defendants to control and continue unabated [Juul]’s efforts to grow the youth market — allowing JUUL to be deceptively marketed as a cessation device and failing to disclose the unique addictiveness and dangers of the product — to achieve their ultimate aim of cashing in on their [Juul Labs Inc.] equity by positioning the company for investment by Altria,” Orrick wrote.

Altria, formerly known as Philip Morris, invested $12.8 billion in Juul in December 2018, two months after it sent a letter to the FDA saying it had “serious concerns” about youth access to vaping products and would take its pod-based e-cigarette products off the market.

Altria argued in its motion to dismiss that the court lacks jurisdiction because the Richmond, Virginia-based company's actions in California were not sufficiently or directly linked to any alleged harm inflicted on the plaintiffs.

The judge found little merit in that contention. He cited meetings that occurred between Altria and Juul in California regarding the development of “business agreements and arrangements through which Altria supported [Juul]’s manufacturing, regulatory, marketing, and distribution efforts and how Altria’s efforts through [Juul] in California achieved their common goals.”

Orrick found many of the arguments made by Altria and Juul’s founders and directors cannot be adequately evaluated until a later stage of litigation when more evidence is available for a jury or judge to scrutinize.

However, the judge dismissed claims of strict product liability against the founders and three members of Juul’s board of directors. He concluded the law does not support extending product liability claims against a manufacturer to the company’s leaders.

He also dismissed claims for medical monitoring in Kentucky and Mississippi because those states do not recognize medical monitoring as “stand-alone claims.”

The judge dismissed several other claims including gross negligence, fraudulent concealment, conspiracy and loss of consortium for certain plaintiffs in various states based on unique differences in each state’s laws.

In a prior court decision this past April, Orrick found that Altria and Juul’s board members could potentially be held liable under the Racketeer Influenced and Corrupt Organizations Act. Those claims are based on a theory that the defendants ran Juul like an illegal enterprise and conspired to deceptively target young people, create a new generation of nicotine addicts, omit information about the potency and nicotine content and deceive government regulators in order to keep selling to children.

Plaintiffs in the larger multidistrict litigation include consumers, school districts and local governments.

Orricks’ ruling on Thursday pertains specifically to 19 bellwether consumer plaintiffs from 14 states, including Arkansas, Connecticut, Florida, Georgia, Kentucky, Louisiana, Mississippi, New York, North Carolina, Oregon, Rhode Island, Tennessee, Utah and Virginia.

Attorneys for the plaintiff class, Altria and Juul’s founders and directors did not immediately return emails requesting comment Thursday.

Altria is represented by Beth Wilkinson of Wilkinson Stekloff LLP in Washington D.C.

Juul, its founds and board members are represented by Austin Van Schwing of Gibson, Dunn & Crutcher in San Francisco.

Adam Gutride of Gutride Safier LLP in San Francisco represents the plaintiff class.

Follow Nicholas Iovino on Twitter.

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