August 29, 2014

Energy Drink Cos. May Find State AG Suits Hard To Swallow

Class Action Law360, Consumer Protection Law360, Food & Beverage Law360, Product Liability Law360

Long in the crosshairs of Congress and personal injury attorneys, the makers of energy drinks may now face a new type of challenge to their products in the wake of recent lawsuits filed by the attorneys general of three states. Previous litigation involving energy drinks focused on the alleged health risks of these products or claims that they are improperly marketed to children, often based on allegations that these products contained excessive amounts of caffeine. These new lawsuits, however, make use of state false advertising statutes to attack fundamental claims regarding how one specific energy drink works and the benefit it provides to the consumer.

Brought by the attorneys general of Oregon, Washington and Vermont in July 2014, the substantially similar complaints allege that Living Essentials LLC and its parent company Innovation Ventures LLC, makers of the popular drink 5-Hour Energy, engaged in a number of practices that constitute false and deceptive advertising under applicable state laws. Specifically, the suits allege that the "energy boost" gained from drinking 5-Hour Energy comes exclusively from its caffeine content, and attack claims that the product's proprietary formula of vitamins and other noncaffeine ingredients produce the enhanced energy effect. Likewise, the attorneys general allege there is no credible basis for the claim that 5-Hour Energy users do not experience a "crash" when the product wears off, and that the defendants falsely misled consumers into believing that 5-Hour Energy was recommended by doctors. The plaintiffs seek civil penalties, disgorgement and injunctive relief.

No doubt, the decision to pursue these cases is driven, at least in part, by the success of energy drinks over the last decade. While sales of traditional drinks, such as soda, have declined in recent years, energy drinks have surged in popularity, creating the potential for significant recoveries against the companies that make and market them. At the same time, criticism of the industry by members of Congress and federal regulators, including a 2013 report from the U.S. Department of Health and Human Services that referred to energy drinks as a "rising public health problem," lends additional pressure that can be used by the attorneys general to try and force settlements.

But the decision to proceed with the suits against 5-Hour Energy may also represent a new tactic built around depriving defendants of key defenses asserted in similar litigations in the past. Primary jurisdiction, for example, is a doctrine that allows a court to stay or dismiss a case pending the resolution of an issue within the special competence of an administrative agency. This defense has previously been used in cases like Aaronson v. Vital Pharmaceuticals, a 2010 decision by the U.S. District Court for the Southern District of California that invoked primary jurisdiction to dismiss state law claims against a defendant accused of wrongly promoting the safety and health effects of its energy drink. Finding the plaintiff's claims to be based upon the contention that the product was not safe, the court in Aaronson stated that in order to evaluate those claims it would "likely need to evaluate conflicting studies" and determine whether the product "should be approved as safe." These issues, the court concluded, "are best suited for the [U.S. Food and Drug Administration]."

In the same vein, because the 1990 Nutritional Labeling and Education Act expressly preempts states from directly or indirectly establishing food and beverage labeling requirements that are "not identical" to the FDA requirements for ingredients, nutrition and health-related claims, defendants in similar lawsuits have also asserted preemption as a defense. Preemption has been particularly successful in dealing with state law claims that would have required packaging include statements about ingredients that were different from the statements mandated under the NLEA.

What is novel about the recent attorney general actions against 5-Hour Energy is that they appear to be an end-run around primary jurisdiction and preemption because they do not address the product's labeling or nutritional disclosures as a primary focus. Instead, the three complaints take aim at rather straightforward claims in print and television marketing regarding how 5-Hour Energy works, what results users can expect and the opinion of the medical community regarding the product. By taking this approach, the attorneys general are likely attempting to avoid the complications of challenging a product's labeling or overall safety, potentially drawing force away from the jurisdictional defenses that defendants have favored in the past.

Grounded in state law and addressing advertising claims that must be addressed on the merits, these new lawsuits take an approach that places defendants in a difficult position. This is particularly true with respect to the claims regarding the source of the "energy boost" provided by 5-Hour Energy. The attorneys general claim that it is caffeine – and caffeine alone – that produces this effect. However, in order to refute this claim, and prove their advertising claims accurate, the defendants may need to disclose the proprietary formula which gives them an advantage in the marketplace. For the makers of 5-Hour Energy, then, its most effective defense may come with the risk of increased competition from copycat products. With such an option likely distasteful to the defendants, the attorneys general could hold considerable leverage in negotiating settlement terms.

The most significant worry for energy drink makers, however, is that the 5-Hour Energy cases will turn into a blueprint for nationwide litigation by state attorneys general. Indeed, the cases filed last month may just be the vanguard against that particular product, as 33 states in total conducted investigations into the marketing claims challenged by the suits from Oregon, Vermont and Washington. If those cases are successful, they may provide a strategy to follow against the industry collectively.

One potential effect may be to revive seemingly stalled investigations. In July 2012, New York Attorney General Eric Schneiderman issued subpoenas to three energy drink makers, including Living Essentials. The focus at that time was whether any of these companies violated federal law by marketing their products as supplements rather than foods, but state authorities also expressed concern about whether those products properly disclosed the caffeine content from all ingredients. No lawsuit resulted; and, had the attorney general brought a case targeting labeling disclosures and made the food vs. supplement distinction a key issue, which was recently the subject of a January 2014 FDA guidance document for industry, the defendants could have been expected to offer vigorous jurisdictional defenses. Now, the state attorneys general appear to believe that their new approach in these recent cases may offer a way forward that avoids thorny intersections between state and federal law altogether.

Makers of energy drinks would be wise to carefully monitor the progress of the three cases filed in July, most especially to see whether the scope of the litigation against 5-Hour Energy expands to additional states. In the meantime, any member of the industry would be well-served to review their past advertising claims and assess any statements that could potentially be challenged in future actions. This should include an assessment of what sufficient, scientifically rigorous data is available to back certain claims, and efforts to supplement the field of data if necessary. Consultation with experienced counsel should be a key feature of this process.

In all likelihood, now that the first shots have been fired, the momentum of the 5-Hour Energy cases will continue in any state that has a false advertising statute sufficient to support the claims already made in Oregon, Vermont and Washington. In turn, state attorneys general are likely to focus on other energy drink makers, closely scrutinizing their past advertising claims to find grounds for additional suits. While the industry cannot halt state officials from undertaking this process, manufacturers of energy drinks can take steps to prepare themselves to defend their products and potentially dissuade state attorneys general from bringing questionable cases against well-prepared adversaries ready to mount a vigorous defense.

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