Juul Cannot Duck Racketeering Claims in Sprawling E-Cig Suit

SAN FRANCISCO (CN) --- In a blow to e-cigarette giant Juul and its largest investor Altria, a federal judge advanced racketeering claims on a new theory that Juul founders and directors ran the company like an illegal enterprise.

The order from U.S. District Judge William Orrick III on Tuesday follows a sweeping ruling he issued this past October advancing claims that Juul intentionally enticed teens to buy e-cigarettes through promotional campaigns, but dismissing allegations of racketeering as insufficiently specific.

In his latest ruling addressing a “second wave” of motions to dismiss, Orrick found the class had sufficiently amended its lawsuit to show how the scheme worked and who was involved, particularly with new allegations leveled against Altria --- formerly known as Philip Morris --- and Juul board members Nicholas Pritzker, Hoyoung Huh and Riaz Valani.

While the judge’s October order found an early version of the complaint did not show more than a mutually beneficial business relationship between Juul and Altria, the amended complaint suggests a new racketeering theory that Juul board members and co-founders Adam Bowen and James Monsees used the company as a vehicle to violate the federal Racketeer Influenced and Corrupt Organizations Act. 

Orrick noted that only Monsees, Bowen, Pritzker, Huh, Valani and Altria can be held liable under this RICO theory.
The class consisting of consumers, school districts and local governments claims that through their control of Juul Labs, these RICO conspirators worked together to deceptively target young people and create a new generation of nicotine addicts, omitted information about the potency and nicotine content of Juul e-cigarettes from its marketing campaigns, and deceived government regulators in order to keep selling to children. 

The class also alleges a “cover-up” scheme to evade public scrutiny over Juul’s role in promoting youth vaping by instead portraying Juul’s product as a “smoking cessation device” that is not marketed to children. For example, Juul’s board of directors met and discussed its marketing in January 2015, including a goal of enlisting the “cool crowd” via social media influencers and a “planned partnership with the #1 youth media magazine, Vice.” 

They also discussed erasing the nicotine content from ads geared toward youth, according to the amended complaint.

Altria purportedly joined the enterprise after it finalized its investment in December 2018, which the class claims “was not merely a financial proposition, but a key element of defendants’ plan to stave off regulation and public outcry and keep their most potent and popular products on the market.” 

Altria specifically conspired with Pritzker and Valani personally as early as 2017, the class claims, "to achieve the best financial outcome for Pritzker and Valani personally, and for Altria as an entity.”

Orrick found this new theory plausible enough to defeat a motion to dismiss, writing, "Plaintiffs’ more detailed allegations regarding the RICO defendants’ achievement of the goals that were primarily sought to advance their self-interests, and not necessarily or primarily to advance JLI’s [Juul's] interests, are adequate to support the plausibility of the theory that JLI was the separate RICO Enterprise.”

Orrick said the amended complaint shows how each Juul board member played a key role in marketing Juul vapes to kids and teens, “leading to the health crisis at issue.” While Pritzker, Huh and Valani deny that they did nothing more than conduct routine business on the board, the class’s amended complaint says they directed the content and slogan for the “Make the Switch” campaign that promoted e-cigarettes as a healthier alternative for adult smokers looking to kick the habit.

"While these allegations may not directly relate to youth marketing, they plausibly support the assertion that marketing was controlled or to some extent directed through the board under the direction of the defendant board members,” Orrick wrote. “This assertion, in conjunction with allegations that the other director defendants numerically controlled the board and, at the very least, had knowledge of the youthful appeal of Juul marketing materials and the growth of youth sales, plausibly establishes the other director defendants’ personal participation in wrongdoing.”

He also rejected Altria’s argument that the class failed to show Altria joined and later directed the enterprise, noting that new details about how it collaborated with Juul in marketing its products help bolster class allegations that Altria was more than just an investor, but a partner in selling vapes. 

Altria also helped keep the U.S. Food and Drug Administration regulators at bay in a “flavor preservation” scheme to keep mint Juul pods on the market, according to the complaint.

Attorneys for Juul and the class did not immediately return emails seeking comment Tuesday. 

Follow @MariaDinzeo

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