Appeals court decision, recent warning letters open door for more CBD suits

By Hank Schultz

- Last updated on GMT

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Related tags cbd beverages Cbd hemp extracts Class action Regulation

A recent appellate court decision coupled with a spate of warning letters sets the stage for more class action lawsuits like the proposed ones filed against CBD companies this week, experts say.

The proposed class actions were filed in the Central District of California against two Colorado companies.  One, Charlotte’s Web, is one of the oldest names in a young industry, while the other, Infinite Products dba Infinite CBD, is a lower profile player. In the suit naming Charlotte’s Web Holdings, plaintiff Michele McCarthy claimed she bought a bottle of CBD oil in olive flavor for $254.77 from the company’s website.  She alleges the product was marketed as a dietary supplement.

But McCarthy’s suit claims that FDA has stated that CBD may not be marketed as a dietary ingredient for use in dietary supplements, so she was harmed by purchasing an illegal product and by paying too much for it.

Charlotte’s Web, which is based in Boulder, CO, says it believes it is complying with the law as it sees it.

“The Company believes that its products are accurately labeled and that the claims are without merit. The Company intends to vigorously defend itself against any such suits,”​ the company said in a statement issued yesterday. 

 Infinite CBD, which is based in Lakewood, CO, issued the following statement: “At this time, Infinite CBD has not been legally served with the complaint in question. Therefore, we have no comment until we are able to review the complaint in its entirety as well as advise counsel. We want the public to know that we take this matter very seriously and will address the complaint once additional information is provided to us.”

DMBA appeals court decision bears on CBD cases

Attorney Marc Ullman, of counsel with the firm Rivkin Radler, said a recent appellate court decision relating to class actions filed over products containing DMBA bears on the current CBD situation.  The class action suit filed in Florida alleged that the plaintiffs were harmed by purchasing weight loss products that contained the illegal ingredient.

The lower court didn’t buy that argument and dismissed the suit in Apri​l. But in mid November the class action plaintiffs won on appeal​, which in Ullman’s view could set an ominous precedent depending on what happens with the case as it returns to lower court.

One issue that always swirls around such class action suits is exactly how the plaintiff was harmed.  Ullman said the appellate court decision makes this calculation more straightforward for dietary supplements that contain a problematical ingredient.

“There is always the issue of damages,”​ Ullman told NutraIngredients-USA. In reversing the decision the 11th Circuit Court held that adulterated products are by definition worthless​. So you can say in a class that we’ve suffered economic harm.”

The relevant portion of the ruling puts it this way: “Debernardis and Damore (the plaintiffs) nonetheless plausibly allege an injury in fact—that they paid more for IQ Formulations’ dietary supplements than they would have paid had they known the company did not follow the law. This difference in price states a concrete economic harm that satisfies Article III standing’s injury in fact element, no matter the label we give it.”

“I think that’s why you see the timing now on these two lawsuits,”​ Ullman said.

Unclear why these two firms were targeted

Attorney Kevin Bell, who is a partner in the firm Arnall Golden Gregory, said given that Charlotte’s Web is a high profile company and Infinite CBD is less so, it’s hard to say why these two companies were the ones chosen for these proposed class actions.  After all, there are hundreds of companies from which to choose.

“It is always hard to determine exactly how opportunistic class action lawyers will choose to monetize what they perceive as a fertile killing field for their own benefit,” ​Bell said.

“How class action lawyers choose their targets is almost entirely driven by how much money the law firm can make.  The strategies are often well thought out and timed to have the greatest financial impact and leverage over the target defendants,”​ he added.

Bell said FDA’s recent spate of warning letters​ will probably also generate more interest from class action law firms.

“I believe there is a strong likelihood that more class actions lawsuits will be filed, particularly in light of the FDA’s 15 recently issued warning letters. Every CBD company currently marketing a product faces some level of risk.  That risk rises exponentially if they are doing such thing as making disease claims, to which the FDA is certainly paying attention,”​ he said.  Indeed, just at press time NutraIngredients-USA learned that prominent CBD firm CVSciences had also been hit with a lawsuit.

“Neither suit presents a safety issue as the primary reason for a claim.  Both suits are based on economic loss.  I don’t think many of us who practice  in this industry are surprised by these complaints,” ​Bell added.

FDA more concerned about safety

While the proposed class action suits don’t raise safety concerns, FDA has on its own accord, said Robert Durkin, of counsel with Arnall Golden Gregory.

“The Agency disclosed that it conducted its own GRAS determination for CBD and concluded that there is not enough data and information in the public domain to support a determination, but then went on to rely on that same publically available material to continue questioning the safety of CBD.  Clearly, the Agency has made known its safety concerns in the past, but this time it used language that seemed to amplify the concern,”​ Durkin said.

One thing that some stakeholders have been calling for is some sort of formal enforcement discretion policy on CBD, a move that seems to take into account that some of the wider issues won’t be quickly resolved.  Durkin said in his view that is a mirage that is receding into the distance.

“With only a few exceptions, the Agency has generally been clear in communicating that it does not have a formal policy of enforcement discretion with respect to CBD-containing products currently on the market.  Based on my experience inside the Agency, I do believe that certain statements made in the recent batch of Warning Letters shed some light on FDA’s current thoughts on this issue.”​ he said.

“My current impression is that any move towards formal enforcement discretion in the near future is now less likely than before the letters issued,”​ he added.

Lawsuit reference:​ The proposed class action lawsuits are Dasilva v. Infinite Product Co., C.D. Cal., No. 2:19-cv-10148, filed 11/27/19; McCarthy v. Charlotte’s Web Holdings, Inc., N.D. Cal., No. 5:19-cv-07836, filed 11/30/19. Michelene Colette et al vs -CV Sciences, Inc- 2:19-cv-10227.


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