On this episode of CHPA Chat, we're talking about the booming business of dietary supplements, especially as a result of the COVID-19 pandemic. But class action lawsuits are also on the rise. In today's episode, we're discussing this real risk to companies and what they can do to get ready.
- Episode Transcript
Anita Brikman: Coming up on this episode of CHPA Chat, we're talking dietary supplements, no doubt a booming business, especially as a result of the COVID-19 pandemic, but increased consumer demand may also open the door to the risk of class action lawsuits. In today's chat, we're talking about this real risk to companies and what they can do to get ready.
Speaker 1: Welcome to CHPA Chat, conversations in the consumer healthcare industry with Anita Brikman.
Anita Brikman: Hey, everyone. Today we are talking about dietary supplements. Would you believe that more than 60% of Americans use dietary supplements every month? That is a lot of people and that number is quickly growing as consumers search for new self-care solutions, especially during the COVID-19 pandemic. But as these products grow in popularity, the industry is also unfortunately faced with increased risk of, you guessed it, class action lawsuits.
I'm honored to sit down today with my co-host, CHPA's senior vice president of dietary supplements, Duffy MacKay, and Rend Al-Mondhiry, a partner at Amin Talati and Wasserman, a law firm focused on dietary supplements and also a CHPA associate member. So thank you for being here Rend, to discuss what these class action lawsuits mean for the industry and how companies can navigate the unfortunate risk of doing business in supplements. Duffy, Rend, welcome to CHPA Chat.
Rend Al-Mondhiry: Yeah, thanks for having me here, Anita and Duffy.
Duffy MacKay: Thank you, Anita. It's great to be here.
Anita Brikman: So let's level set for our audience and for me, let's describe exactly what is a class action lawsuit. Rend, do you want to kick us off?
Rend Al-Mondhiry: Yeah, that is a great question to start out with. Basically, it's a mechanism that allows a plaintiff or a group of plaintiffs to file a lawsuit on behalf of a larger group, rather than having the court deal with each individual case. And so that's the class in class action.
The ones involving dietary supplements are usually based on allegations of false or deceptive advertising, where the plaintiff or plaintiff's claim they were misled by certain claims or statements on the label. In some cases it's a lack of information on the label and that they relied on these misrepresentations or omissions when deciding to purchase the product. And often there's a claim that the plaintiffs paid a premium for the product based on the claims, for example, that they paid a premium for a product they thought was all natural, but it turns out it was actually artificially flavored or so they allege.
Anita Brikman: Duffy, is this a real issue in dietary supplements in particular?
Duffy MacKay: Absolutely, Anita. It's a concern in the background because what's unique about class action lawsuits is sometimes you can be aligned with regulation and be in compliance with regulation, but the consumers are still feeling misled. So there's a vulnerability there that [crosstalk] takes another set of considerations.
Anita Brikman: Okay. So now that we've set that stage, what do we need to be telling our companies? And Duffy, I'll let you take over this conversation with Rend, but this does not sound like a good thing. In fact, what are the bad things that can happen as a result of this risk?
Duffy MacKay: Well, Anita, I had just come from working in a company before joining with CHPA and my CEO would often remind the staff at different levels, people in quality, people in marketing, of this risk, because one of the things that happens is once you've been served a class action lawsuit, you have to manage it one way or another, and there is a cost associated with it. So even in occurrences where your company has done nothing wrong, there still is the cost of getting yourself out or settling. And I think Rend can speak more from experience, the different things that can happen to a company once they've been served.
Rend Al-Mondhiry: Yeah, Duffy, you're absolutely right. Money is a main factor, but it's also important to consider there can be some reputational risk if the suit is actually filed, that is. Most defendants, when they get a demand letter, basically threatening a lawsuit, end up settling out of court, partly to avoid this reputational risk. But I mean, back to money, even dealing with these demand letters where, as I mentioned, a plaintiff is demanding a certain amount of money not to file the lawsuit. That can be costly to deal with that.
Our firm is really familiar with a lot of the plaintiff's firms that send these letters on a regular basis. And we've had a lot of success in negotiating relatively low settlement amounts, but whether you settle or whether you decide to fight it out in court, it's going to be expensive. And one other thing to keep in mind is that states like California, especially where we see the highest number of class action lawsuits against the food and supplement industry, they make it relatively easy for plaintiffs to file even meritless lawsuits with most of the burden on defendants.
And there are so many of these, we call them nuisance actions, that are threatened, that it's really in the interest of companies, especially large CPG brands like I'm assuming many of CHPA members, that the plaintiffs also think that these bigger companies are likely to pay a higher settlement. And so knowing the risks, being proactive can really help reduce risk in a meaningful way. And, just aside from the money aspect, the other thing to keep in mind is that as part of these settlements, companies may have to change their claims too, and remove claims and then have new packaging, which is also costly and just adds to that overall financial burden of dealing with these class action suits.
Duffy MacKay: Rend, you used an interesting term, you said nuisance, and I know, there's somewhat of a cottage industry of law firms that are specialized in this and they get the nickname bounty hunters, right. They're not seriously out there looking for where consumers have been harmed. They've created a business out of looking for vulnerabilities in large companies. In my experience that when a company is well prepared and a company does the right things right up front, sometimes they just say, "Well, I'm going to go on to the next more vulnerable company."
So I like what you said with regard to companies really doing what they can to defend themselves and we'll get there, but you've been working with dietary supplements as long as I've known you. You're a CHPA member. You're active in this industry. What do you think the relative risk for dietary supplement companies is as compared to let's say a software company or a clothing design company?
Rend Al-Mondhiry: Well, I mean, like the conventional food industry, I mean the supplement companies are an increasing target. I mean, you see so many of these lawsuits and as Anita opened up with, I mean, so many consumers are using them. They're very popular. Between food and supplements, these are products that people are using every day. So I think that the supplement industry is a very unique target. In fact, the number of suits, it seems to increase every year.
I think I recall 2019 was a record year for some reason. And we opened up an LA office just last year just to handle these types of suits because we're seeing so many of them against the industry. And I think also too, with supplements the rules aren't always black and white. So there's room for interpretation and although regulatory compliance isn't always going to help you with class action suits, I think when it comes to what is the line between structure/function claims and disease claims? What type of evidence you need to support these claims? Is it actually supported? Are these claims actually true or false?
I think a lot of that makes the supplement industry vulnerable. And you also need to think beyond just these product claims. These class action lawsuits extend to packaging as well. So with the increase in consumer interest in sustainable and environmentally friendly packaging, recycling claims come to mind. I mean, there really are a lot of potential pitfalls when it comes to marketing these products just from a class action perspective. So that's something else to keep in mind.
Duffy MacKay: That's interesting. I recently, again, I'll reference my recent time with industry and especially in the [inaudible] of the area of sustainability, there's a big enthusiasm for marketing departments to want to say things about things that aren't used in packaging or just various claims that would make it fall in the bucket of sustainable. And to really have the responsibility to have some sort of substantiation for that, right.
Rend Al-Mondhiry: And you think you're doing something right. You want to be environmentally friendly. You think you've done everything right. FTC actually has its green guides, which they're going to be updating this year, partly due to the increased interest by consumers in green claims. [crosstalk] And so you can think you're doing everything right, but your claim might be too broad.
I mean, you have to think about sustainability, environmentally friendly. Are you talking about the packaging? Sometimes we even see claims around ethical. Is it because you source ethically? Is it because you treat your employees ethically? I mean, these terms have so many different meanings and you can think that you're substantiating it, your claims and you're following FDA guidelines.
But as you said, Duffy, the bottom line is that you can do everything right in terms of FDA or FTC compliance, but a consumer can still allege that your label is misleading and deceptive because they read into that claim even more. And that's where this reasonable consumer standard comes into play, where you still have to think about regulatory compliance, but there's also this reasonable consumer, what are they taking away from your labeling and your claims?
Duffy MacKay: Right. Right. [crosstalk] So I recently read an article that you wrote for RAPS. It's a really good article on class action lawsuits. And you brought up this point about the reasonable consumer standard. And I thought that was something that the industry should really take a second with because, again, when you're following regulations, sometimes there's a desire to push...people want to push the envelope.
They want to get out ahead of their competitors. And so they can look at the regulation and say, "Look, we're totally in compliance with the regulation. We're okay." But you've brought up, there's a second lens that you have to look through is what would a reasonable consumer take away from the totality, let's say of the advertisement? And that's a real different lens to look through when you're looking at your, let's say marketing material.
Rend Al-Mondhiry: Absolutely. I mean, it is. It's two different analyses that you need to think about when you're reviewing claims. And most of these dietary supplement lawsuits tend to center on whether a reasonable consumer could be deceived by a given claim. What would an average consumer take away from the claim? And this applies, as I mentioned, it's not just express claims, things that you actually say, but implied claims too.
So think about an all natural claim. That's one that everyone knows is a frequent target of class actions. Maybe as the marketer you mean, "Okay, our ingredients are naturally derived or they're derived from food." But, the reasonable average consumer might take this further. The product and its ingredients are minimally processed or that the products contain absolutely no heavy metals, which is nearly impossible to avoid. I'm sure you know that, Duffy.
So you need to think very broadly, how could a consumer understand natural, especially when we don't have any real regulatory guidance? I know FDA has said that they're looking at updating the term natural when it's used in labeling, but again, you still need to go back to what would a reasonable consumer take away from it? Another great example, just on this topic of sustainability, environmentally friendly, because this is something that's really become a trend is recycling claims.
So we see claims everywhere saying that a product's packaging is recyclable. I mean, I recycle. I mean, half of probably what we discard of in our house, but not all materials and not all plastics, specifically, can be recycled. So we're seeing a rise in suits involving these claims that could spill over into supplement packaging too, of course.
And the argument is that a reasonable consumer would expect that if the package says it's recyclable, it should actually be recycled. And it's deceptive if it's not the case. For example, where you live they don't recycle that type of plastic. And again, it's especially true because consumers are valuing and they're seeking out these types of environmentally friendly, sustainable products.
Duffy MacKay: That's interesting. As you're talking about that, it comes to mind with structure/function claims, a lot of times there'll be a line you can't cross. And I'll say for saw palmetto, for example. So saw palmetto is really for benign BPH, for helping people's prostate.
But when you see the marketing for it says for prostate health if there's a lot of information that a substance is out there for a certain condition, I know this has been brought up by some of the consumer groups where you're making that jump from your product's labeled for heart health, but it's really for blood pressure and that's a tricky area that I've seen discussed before amongst the legal experts.
Rend Al-Mondhiry: Yeah. It is. It can be a really tricky area, but there have been some positive court decisions that have come out based on recent attacks by plaintiffs on structure/function claims. And these have come out of the very influential Ninth Circuit. And basically they've recognized and that where a consumer class action is seeking to enforce a standard that's different.
So for example, if for a prostate health saw palmetto, and it says supports prostate health, if the plaintiff is saying, "Well, this claim is false or it's deceptive because I think that you really are talking about curing prostate cancer or preventing it and your product doesn't do that." Courts have actually said that those types of claims are preempted.
And there is the case that the Dachaeur case, which is from a couple years ago where it was a similar set of facts where the product was making some heart health, cardiovascular health claims and the plaintiff said, "Well, wait, this is deceptive. These products don't actually cure heart disease. There's no scientific proof of that." And the court said, "You can't impose that type of requirement. It's a different standard for structure/function claims than what the FD&C Act requires." So the plaintiff's claims were blocked.
There was another one last year, another positive case, the Greenberg Decision, which involved biotin products and healthy hair and skin claims where the plaintiff said, "The claims were false because the majority of populations get enough biotin from their diet. And so they don't need these supplements." But this was rejected because companies, they don't have to show, companies don't have to show that their products will benefit each and every consumer, right.
Duffy MacKay: Right. Right.
Rend Al-Mondhiry: It can be a general substantiation requirement, showing the health benefits, but not just for people who have a deficiency and as well as people who don't have deficiency.
Duffy MacKay: So good news in those cases–
Rend Al-Mondhiry: Mm-hmm.
Duffy MacKay: And that took a company to really decide it wanted to go the full 100 yards, right. To take it across the finish line and fight back for us to get to that point in the conversation. Is that correct?
Rend Al-Mondhiry: Yeah. I mean, like I said, I think it's the vast majority. I don't know the exact percentage, but it's definitely over 90%, maybe I'll even say over 95% of these cases, which start with a demand letter, they do settle because companies don't want to go through all of this. Hopefully, I think because of this positive live case, and there's a few others that have cited Dachaeur on the original case involving the heart health claims.
I think it will empower companies that are defendants in these cases or when they receive a demand letter to actually fight these cases. I think it's safe to say that some of these plaintiffs firms have...their activity might have been chilled by these positive court decisions and they've said, "Hey, we're going to look elsewhere because the courts were pretty clear." But I would think that for some companies seeing these positive outcomes out of the Ninth Circuit would encourage them to fight rather than just to settle.
And it's a tough decision. Do we fight? Do we settle? And to try to maintain costs and reputation, it is usually the case that companies settle. But I would say that these court decisions definitely empower defendants in these cases. And they should really consider fighting when plaintiffs are attacking the very fundamental requirements that FDA has laid out for structure/function claims, especially.
Anita Brikman: I wanted [crosstalk] to jump in here on that, Rend, because early on you said something about these meritless claims, and here's an exact example where with biotin, et cetera, this is great to see case law that supports the appropriate marketing of these products. I understand that you might face less risk to settle, but what can you and Duffy say to companies or individuals who might be listening to say, if this really is a bad claim and you have the legal grounds to fight it, is there a way that we can encourage companies to stand up and say, "We're not going to take this."
Rend Al-Mondhiry: Well, I mean, I think you need to look at it from what are the specific set of facts, of course, but the reason that this line of cases was able to rely on preemption...and preemption is a very powerful defense tool that companies can use, but it's not always available. I think because there are very few areas of the FD&C Act that are preempted. I just wanted to mention that too. But here, preemption works where a plaintiff is trying to impose a different or a conflicting or additional set of requirements than what federal law allows.
So I think it does require you sitting down with your legal counsel and saying, "Okay, is this what plaintiffs are trying to do here? Are they trying to impose something that's different? Or can I make an argument here that the plaintiffs are trying to impose requirements that are different than federal law?" So that's where that can come into play. Another really interesting angle that has been successful for companies is to argue primary jurisdiction. And this is more useful where FDA is in the midst of interpreting a specific policy or there really is no definitive law or regulation to point to.
NDI's are a good example of that, where plaintiffs have attempted to say that a company didn't comply with NDI requirements and therefore the product is not a dietary supplement. Courts have been unwilling to step in the shoes of FDA and say, "Okay, we're going to decide what's an NDI that needs to be notified and what isn't."
But whether we're talking about NAC or CBD, when plaintiffs come in and say, "You're falsely marketing your product as a dietary supplement because FDA takes this position on it." Courts have said, "Hold on. We're not going to intervene."
So I think companies do need to look at those potential defenses that might be available. And I would say whether the class can actually be certified. I think that what I'm talking about now are more substantive, fact-based, based on the type of claims. So sitting down with your regulatory counsel or your legal counsel and trying to figure out, "Are these defenses available to me in this case that can help?"
And then if not, then maybe you decide to settle, but if there's a possibility to fight it and come back, sometimes even with a strong...what we've done in some cases like with the CBD line of cases is just when we get a threatened lawsuit and write back a very stern response to the plaintiff's firm saying, "Primary jurisdiction, preemption, we think you're wrong." And sometimes that can scare away the plaintiff's firm just like that. So again, just breaking it down, seeing what's there, what's wrong, [inaudible] can really help.
Duffy MacKay: Yeah. So those are some good tips. Do you have other things that you advise that companies can do proactively to reduce their risk in general?
Rend Al-Mondhiry: Yeah, I mean, it seems pretty obvious, but looking at your label, right. Just taking a look at it and your marketing material, and I would say label and labeling your website, marketing materials, taking a look at everything from the vantage point of this reasonable consumer and not just merely technical compliance with FDA requirements or FTC or whatever the case may be. And looking, not just at the express claims, but also, are there any implied messages that can be taken away from this labeling, and to consider all possible interpretations of the labeling as a whole.
I mean, really context is key. I mean, I can't say that enough. It's really hard to gauge risk. I mean, sometimes you're sitting down with your marketing department and you're just focused on one claim in isolation, but it can really have a different meaning when you see it in the context of the labeling and maybe surrounding claims. That's especially true with these environmental claims as well. There can be claims that strengthen or really modify that message in some way that you didn't even intend. So really just looking at it holistically, what are these claims saying? And not just are they compliant with the relevant laws and regulations that are on the books.
Duffy MacKay: And so I know that sometimes there's trends too. For a while there was natural claims. Is it wise to update yourself on the current trends and somewhat stay out of that area? I mean, that's something that–
Rend Al-Mondhiry: Oh, absolutely. I mean, being just knowledgeable on what the trends are. What we do for example, is we track the trends and some companies they do this themselves, but our firm, we also, we are tracking these day in and day out, seeing where the threaten demand letters are and that is where working with a law firm can help because as a company, then you can track trends but the issue is that these demand letters that threaten lawsuits, those are not made public and those settle privately and confidentially.
So you, as a company, even though you're tracking, you're on Law360, or you're reading Bloomberg or you're trying to keep track of it. And sometimes, even the New York Times had a really nice article last year about just the attacks on the food industry and class actions. Working with a law firm like ours can be helpful because we are seeing those demand letters that are coming in.
Duffy MacKay: Right. Right.
Rend Al-Mondhiry: And so we have access to trends that some companies may not be aware of because that information just isn't public.
Duffy MacKay: Right. Right. Makes sense.
Rend Al-Mondhiry: Mm-hmm (affirmative).
Duffy MacKay: No, that's some great information. Anita, do you have any additional questions?
Anita Brikman: No, I really don't, Duffy. I think this discussion has been fascinating and I think the practical tips that Rend has offered, and again just that cautionary advice to take a hard look, not just at what's on your label, but your website and how it could be interpreted. I think that's great advice for CHPA members and anyone in the dietary supplement space. Duffy, Rend, thank you for being part of a very informative CHPA Chat.
Rend Al-Mondhiry: Oh, you're welcome. It was great to be here.
Speaker 1: Thank you for joining us here at CHPA Chat. For more information and to hear our entire catalog of shows, please visit chpa.org.
The views expressed in this podcast are solely those of the speaker and do not necessarily represent the opinions of the Consumer Healthcare Products Association.