Juul Beats Racketeering Claims in Marketing Suits, For Now

Juul Labs Inc. won a ruling that knocked out racketeering claims from a group of hundreds of lawsuits accusing the e-cigarette maker of deliberately targeting teenagers.

U.S. District Judge William Orrick in San Francisco on Friday said claims brought by consumers, local governments and school districts under the Racketeer Influenced and Corrupt Practices Act -- which could have put Juul on the hook for triple damages -- didn’t pass legal muster. But the judge said the plaintiffs can amend their court filings and try to make a RICO case.

“More specific allegations are needed for the RICO claims” against Altria Group Inc., Orrick said. Altria, previously known as the Philip Morris Companies Inc., has a 35% stake in the e-cigarette company and is a defendant. The plaintiffs also will need more specifics of RICO activities by directors named as defendants to proceed against them, the judge said.

Juul and Ellen Relkin, one of the plaintiffs’ lawyers, declined to comment. Altria didn’t immediately respond to a request for comment.

If government entities and others suing over the e-cigarette marketing tactics aren’t successful in reviving the so-called RICO claims, it will take some pressure off Juul and Altria. The civil RICO claims -- which carry heavy financial penalties -- have been likened to the litigation equivalent of a thermonuclear device.

An adverse ruling would have given the plaintiffs substantial leverage in settlement negotiations because Juul and Altria likely would have been eager to avoid the risk of a jury trial on the racketeering claims. The 1970 law was originally designed to prosecute organized crime, but has also been used in civil suits, including against tobacco companies.

The federal government successfully sued Philip Morris and other tobacco companies in 1999 for civil RICO violations by alleging a conspiracy to deceive the American public about the dangers of smoking and second-hand smoke as well as the addictiveness of nicotine.

Consumers and school districts claim Juul took a page out of the tobacco industry’s play book by creating a highly addictive nicotine product, marketing it as a benign smoking cessation device, and intentionally targeting children as a customer base.

To reach the kids, Juul relied on a “diabolical pairing” of cigarette company advertising techniques with cutting-edge viral marketing campaigns and social media, the plaintiffs claim. Juul and other companies have pulled back from using such techniques.

Juul has denied there was any illegal “enterprise” in its business relationships under the meaning of the law, and argued in court filings its alleged misrepresentations about e-cigarettes don’t amount to fraudulent “racketeering” activities.

In his 152-page ruling, Orrick largely upheld plaintiffs’ claims that Juul intentionally lured teens into buying e-cigarettes and failed to take “adequate precautions” to insure underage users didn’t get addicted to their product.

In particular, the judge refused to throw out claims Juul and Altria officials engaged in a “scheme to defraud” through misleading statements about e-cigarettes’ addiction risk. He’s also letting plaintiffs proceed with allegations that executives “sought to grow the market for nicotine-addicted individuals, particularly youth who did not use traditional tobacco products.”

The case is In re: Juul Labs Inc. Marketing, Sales Practices & Products Liability Litigation, 19-MD-02913, U.S. District Court, Northern District of California (San Francisco).

©2020 Bloomberg L.P.

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