In the United States District Court for the District Of
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Case 1:16-cv-00296-JB-LF Document 132 Filed 12/21/17 Page 1 of 249 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO IN RE: SANTA FE NATURAL TOBACCO COMPANY MARKETING & SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION No. MD 16-2695 JB/LF MEMORANDUM OPINION AND ORDER THIS MATTER comes before the Court on: (i) the Defendants’ Request for Judicial Notice in Support of Motion to Dismiss, filed November 18, 2016 (Doc. 71)(“First JN Motion”); (ii) Defendants’ Second Motion for Judicial Notice in Support of the Motion to Dismiss the Consolidated Amended Complaint, filed February 23, 2017 (Doc. 91)(“Second JN Motion”); (iii) Defendants’ Third Motion for Judicial Notice in Support of the Motion to Dismiss the Consolidated Amended Complaint, filed May 30, 2017 (Doc. 109)(“Third JN Motion”); and (iv) the Defendants’ Motion to Dismiss the Consolidated Amended Complaint and Incorporated Memorandum of Law, filed February 23, 2017 (Doc. 90)(“MTD”). The Court held hearings on June 16, 2017 and July 20, 2017. The primary issues are: (i) whether the Court may consider the items presented in the First JN Motion, the Second JN Motion, and the Third JN Motion without converting the MTD into one for summary judgment; (ii) whether the Court may exercise personal jurisdiction over Reynolds American, Inc. for claims that were not brought in a North Carolina forum; (iii) whether the Federal Trade Commission’s Decision and Order, In re Santa Fe Nat. Tobacco Co., No. C-3952 (FTC June 12, 2000), filed November 18, 2016 (Doc. 71)(“Consent Order”), requiring Defendant Santa Fe Natural Tobacco Company, Inc. to use a disclosure that “No additives in our tobacco does NOT mean a safer cigarette” impliedly preempts the Plaintiffs’1 claims 1There are twelve named Plaintiffs in this action: Jacques-Rene Hebert and Albert Lopez, citizens of the State of Illinois; Sara Benson, a citizen of the State of Colorado; Justin Sproule and Case 1:16-cv-00296-JB-LF Document 132 Filed 12/21/17 Page 2 of 249 to the extent that the Defendants’ advertising misled the Plaintiffs into believing that Natural American cigarettes are safer or healthier than other cigarettes; (iv) whether “natural,” “additive- free,” and “substantially similar terms” mislead a consumer into believing: (a) that Natural American cigarettes are safer or healthier than other cigarettes, (b) that Natural American’s menthol cigarettes do not include any additives; or (c) that Natural American cigarettes undergo fewer engineering processes than other cigarettes; (v) whether the Defendants’ use of those descriptors is protected commercial speech under the First Amendment to the Constitution of the United States of America; (vi) whether state law safe harbors shield the Defendants from liability; (vii) whether the Plaintiffs’ unjust-enrichment claims fail, because: (a) the descriptors did not deceive consumers, so there is no injustice for equity to correct; (b) the Plaintiffs have an adequate legal remedy under the various state consumer statutes; or (c) state specific law otherwise bars them; (viii) whether the Plaintiffs’ breach-of-express-warranty claims are barred, because: (a) the FDA-mandated disclosure and the menthol ingredient modify the warranty such that there is no breach; (b) the Plaintiffs’ Consolidated Complaint, filed January 12, 2017 (Doc. 82)(“Amended Complaint”) does not serve as the requisite pre-litigation notice under California, Florida, Illinois, New Mexico, New York, and North Carolina law; and (c) the Plaintiffs failed to allege privity of contract with the Defendants as required by Florida, Illinois, and New York law; and (ix) whether the Memorandum of Agreement Between the United States Food and Drug Administration’s (FDA) Center for Tobacco Products (CTP) and RAI Services Company (RAIS)/Santa Fe Natural Tobacco Company, Inc. (Santa Fe), dated January 19, 2017, filed February 23, 2017 (Doc. 91-1)(“Memorandum of Agreement), in which the Defendants Joshua Horne, citizens of the State of Florida; Abigail Emmons and Ceyhan Haskal, citizens of the State of New Mexico; Rudolph Miller and Charlene Blevins, citizens of the State of North Carolina; Carol Murphy, a citizen of the State of Idaho; Robert Litwin, a citizen of the State of Maryland; and Francisco Chavez, a citizen of the State of California. See Amended Complaint ¶¶ 12-23, at 4-11, filed January 12, 2017 (Doc. 82). - 2 - Case 1:16-cv-00296-JB-LF Document 132 Filed 12/21/17 Page 3 of 249 agree to remove the descriptors from its packaging and labeling, except for the term natural in its brand name, renders the Plaintiffs’ request for injunctive relief moot. The Court concludes that: (i) the Court may consider all but one of the documents the Defendants submit without converting the MTD into one for summary judgment, because the documents are incorporated in the Amended Complaint by reference, or they are government documents publically available and capable of ready and accurate determination; (ii) the Court lacks personal jurisdiction over Reynolds American, as to the claims filed outside of North Carolina; (iii) the Consent Order does not preempt the Plaintiffs’ claims, because (a) a consent order is not a “law” under the Supremacy Clause, (b) the Consent Order -- as an agreement not to enforce a federal statute -- does not permit conduct; (c) the Consent Order only binds the parties to it, so does not bind all of the Defendants; and (d) the Consent Order covers only the Defendants’ advertising, so cannot preempt the Plaintiffs’ claims targeting the Defendants’ labeling; (iv) the descriptors “natural,” “organic,” and “additive-free” would mislead a reasonable consumer into believing that: (a) Natural American Cigarettes are healthier or safer than other cigarettes, because decades of marketing have equated those terms with healthy products; and (b) Natural American menthol cigarettes have no additives, because menthol is a substance that a reasonable consumer would not know much about; (v) the First Amendment does not protect the Defendants’ use of the descriptors at issue, because the state action doctrine precludes a First Amendment defense to the claims premised on mutual assent, and the government has a substantial interest in regulating deceptive commercial speech regarding tobacco products; (vi) the state-law safe harbors do not preclude relief, except in Illinois, because the Consent Order does not permit conduct, and the Ohio consumer protection claims are barred for state-specific reasons; (vii) Rule 8 allows pleading in the alternative, but New Jersey and Ohio law do not permit the Plaintiffs’ unjust-enrichment claims, because the Plaintiffs cannot allege a - 3 - Case 1:16-cv-00296-JB-LF Document 132 Filed 12/21/17 Page 4 of 249 remuneration nor can they allege that they conferred a direct benefit on the Defendants; (viii) Florida, Illinois, and New York law preclude the Plaintiffs’ express warranty claims, because the Plaintiffs Amended Complaint cannot serve as the requisite pre-litigation notice, and are independently defective under Florida and Illinois law, because there is no privity between the Plaintiffs and the Defendants; and (ix) the Plaintiffs’ request for injunctive relief is not rendered moot, because the Memorandum of Agreement is subject to a lawsuit that might invalidate it. The Court therefore grants the MTD in part and denies it in part. FACTUAL BACKGROUND The Court takes the facts from the Amended Complaint. As the Court must, it accepts all factual allegations in the Amended Complaint as true for the purposes of a motion to dismiss. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court may also consider facts judicially noticed on a motion to dismiss without converting the motion into one for summary judgment. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 322 (2007)(“[C]ourts must consider the complaint in its entirety, as well as . matters of which a court may take judicial notice.”); S.E.C. v. Goldstone, 952 F. Supp. 2d 1060, 1191 (D.N.M. 2013)(Browning, J.). The Court recites facts from the documents included in the First JN Motion, the Second JN Motion, and the Third JN Motion to the extent that the Court concludes that it can consider those documents. See infra § I (“The Court concludes that it may consider all of the documents, which the Defendants submit, except the FTC Letter, without converting the MTD into one for summary judgment.”). Santa Fe Tobacco is a New Mexico corporation that sells Natural American Spirit cigarettes and uniformly advertises them as “Natural” and “100% Additive Free.” Amended Complaint ¶¶ 1, 24, 40, at 1, 12, 15. Those same descriptors appear on Natural American cigarettes’ packaging. - 4 - Case 1:16-cv-00296-JB-LF Document 132 Filed 12/21/17 Page 5 of 249 Amended Complaint ¶ 4, at 2. The twelve named Plaintiffs believed that, based on those terms and others, Natural American cigarettes were “safer and healthier” than other cigarettes. Amended Complaint ¶¶ 12-23, at 4-11. Because of that belief, the Plaintiffs purchased Natural American cigarettes at a premium over other cigarettes. See Amended Complaint ¶¶ 11-23, at 3-11. Reynolds American -- Santa Fe Tobacco’s parent corporation -- is heavily involved in Natural American cigarette advertising, and approves “all decisions” that Santa Fe Tobacco makes “with respect to the marketing, design, and composition.” Amended Complaint ¶ 28, at 12. Reynolds American actively monitors the publications in which Natural American cigarettes are advertised. See Amended Complaint ¶ 28, at 12-13. Santa Fe Tobacco’s and Reynolds American’s assets are identical, and Reynolds American “essentially controls” Santa Fe Tobacco’s business initiatives, capital expenditures, and financial operations. Amended Complaint ¶ 35, at 13-14. Natural American advertisements from 2013 through 2015 include images of water and plants, along with statements like: “When you work with the best materials, you don’t need to add anything else.