Nicotine Giants Fight RICO Claims in Sprawling E-Cigarette Class Action

(AP Photo/Nam Y. Huh, File)

SAN FRANCISCO (CN) — Lawyers for nicotine giants Juul and Altria pulled out all the stops Monday to defeat a multidistrict class action claiming they conspired to get young people hooked on addictive e-cigarettes with deceptive ads and marketing campaigns.

Arguing in a virtual courtroom Monday, Juul attorney Gregory Stone of Munger Tolles & Olson said his client can’t be held liable for violating state consumer protection laws because that would interfere with the U.S. Food and Drug Administration’s exclusive power to regulate nicotine products.

“The claim that you should apply state laws will be totally inconsistent with the FDA’s unitary and uniform review,” Stone told U.S. District Judge William Orrick III during a five-hour hearing.

In 2016, the FDA classified e-cigarettes as tobacco products subject to its jurisdiction. After initially giving companies until 2018 to apply for review of e-cigarette products, the FDA in 2017 extended that deadline to Aug. 8, 2022. A federal judge in Maryland moved that deadline up to May 2020 after finding the FDA was violating the law by letting e-cigarettes enter the market without prior review. The judge set a one-year deadline for the FDA to review the applications.

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.

Stone argued that Juul and its executives can’t be sued for those alleged violations because the FDA decided not to impose more stringent requirements on Juul’s advertising and labeling.

“The FDA considered broader health warnings,” Stone said. “If FDA determines the 5% nicotine is an accurate statement, then the claims that it should say 6.2% instead of 5% are preempted.”

Plaintiffs also claim Juul gave consumers a false impression that vape pens could help them break their nicotine addictions and quit smoking, even though Juul pods are “at least as, if not more, addictive than combustible cigarettes.”

Stone said the FDA recognized vape pens could help cigarette smokers switch to a “less harmful” product that does not contain toxic byproducts such as tar and carbon monoxide.

“That’s exactly what the FDA was trying to do in making this an alternative,” Stone said.

Juul’s vaping pods don’t contain tar, but e-cigarettes do contain substances that have been linked to a higher risk of cancer, and experts say more study is needed to determine their true impact on human health.

Arguing for the plaintiffs, attorney Andrew Kaufman of Lief Cabraser Heimann & Bernstein insisted state law claims against Juul and its co-defendants are not preempted because the Tobacco Control Act contains a specific carveout for product liability claims. He urged Judge Orrick to reject Juul’s argument that Congress never intended to make a carveout for state law claims because that would contradict the purpose of the statute — to federally regulate tobacco products.

“It was perfectly reasonable for Congress to create a backstop for compensation for people injured by tobacco products,” Kaufman said.

The plaintiffs also claim that Juul, its executives and board members conspired with Juul’s largest investor Altria, owner of Philip Morris USA, to deceptively target young people and create a new generation of nicotine addicts. They say those defendants worked together to commit mail and wire fraud in violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Defense lawyers say statements Juul and Altria made to the FDA or Congress can’t be used against them as evidence of fraud because lobbying speech is protected by the First Amendment under the Noerr-Pennington Doctrine established by two Supreme Court decisions.

Plaintiffs say a “sham exception” applies to that rule. They cite Altria’s October 2018 letter to the FDA saying it had “serious concerns” about youth access to vaping products. In that letter, Altria vowed to take its pod-based e-cigarette products off the market.

But Altria failed to mention at the time that it was finalizing a deal to invest $12 billion in Juul, making it the company’s largest investor.

“To say we’re going to take our pod-based products off the market without disclosing the investment was misleading,” plaintiffs’ attorney Sabita Soneji of Tycko & Zavareei said.

Before the five-hour virtual hearing Monday, Judge Orrick issued a tentative ruling stating he was inclined to mostly deny the nicotine giants’ motions to dismiss consumer class action claims and dozens of other lawsuits brought by government entities, including the city of Denver and multiple school districts.

Orrick said he was likely to reject arguments that state laws in Arizona, California, Florida, Pennsylvania and New York bar local governments from suing to recover the cost of public services provided to residents. The judge wrote that a public nuisance exception applies to those claims.

“It is foreseeable that school districts would bear the costs of combating a youth e-cigarette crisis allegedly created by [Juul]’s conduct in designing a product that appealed to young users and marketing it directly to youth,” Orrick wrote in his tentative ruling.

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