Rebecca Tushnet

In re Natera Prenatal Testing Litig., No. 22-cv-00985-JST,
2023 WL 3370737, — F. Supp. 3d – (N.D. Cal. Mar. 28, 2023)

Natera sells Panorama, a noninvasive prenatal testing
(“NIPT”) product which screens for an array of fetal chromosomal and genetic
conditions:

NIPTs are screening tests, not
diagnostic tests; while an NIPT can screen patients for a “high risk” of the
presence of a particular fetal condition, a patient who receives a positive
NIPT result should follow up with diagnostic testing to confirm the presence of
that condition.… Diagnostic tests, though more accurate than NIPTs, are also
more invasive, are associated with a risk of miscarriage, and must be conducted
later in the pregnancy term. In 2020, the American College of Obstetricians and
Gynecologists (“ACOG”) changed its guidance to recommend that all pregnant
persons “be offered both screening and diagnostic testing options.”

Natera’s advertising touted “fewer false positives and fewer
false negatives” and offered patients the ability to “[d]iscover more about
your baby’s health.” It included a testimonial from a patient “now planning a
birth at a regular maternity ward instead of closer to the children’s hospital
thanks to this painless test!” Its website described Panorama as “the most
reliable way of non-invasively assessing a baby’s health,” having been tested
with “the largest prospective NIPT study” with outcomes of “~90% samples with
genetic truth.” It stated that a “high risk” finding for a particular condition
“indicates a very high probability that your baby may have [the] condition.” It
highlighted Panorama’s positive predictive value (PPV) for Down syndrome of
over 90% and describes Panorama as “[n]on-invasive and highly accurate, …
identif[ying] more than 99% of pregnancies affected with Down syndrome [with]
the lowest reported false positive rate of any prenatal screening test for the
commonly screened chromosomal abnormalities: [Down syndrome], trisomy 18, and
trisomy 13.”

The importance of PPV is easy to overlook. (I’m working on a
paper with Chris Buccafusco now about this problem in music copyright cases.)
If there is any false positive rate at all, and if the base rate of the
tested-for condition is low, then a positive result can be much more likely
than not to be a false positive, even if the test has a very low false positive
rate. And most people find this very difficult to understand—how could a
99% reliable test be wrong more often than not? This is sometimes known as
“base rate neglect.” Down syndrome is the best case for PPV because its
prevalence in the population is much higher than most of the other tested-for
conditions.

As the court explained,

Panorama’s accuracy varies widely
across conditions. While Panorama is very effective in screening for Down
syndrome, it is much less effective in screening for rare genetic conditions,
including those caused by microdeletions. … Natera knew, but did not disclose,
that Panorama has a high rate of false positives for microdeletion-related and
other rare conditions. In 2016, Natera acknowledged the results of a published
study which found that Panorama had an 18% PPV for DiGeorge syndrome, a rare
genetic condition. In other words, 82% of Panorama’s positive results for DiGeorge
syndrome were false positives. Panorama’s PPVs for other rare conditions –
which similarly were not disclosed in marketing materials – are as low as 2-5%,
such that up to 98% of positive results for those conditions are false
positives.

Yet Natera allegedly advertised Panorama “as reliable
overall, prominently emphasizing the accuracy rates of the tests for more
common conditions like Down [s]yndrome [which] Panorama can reasonably detect.”
Natera’s brochure for consumers didn’t include any information about PPV rates,
and the website listed only the PPV for Down syndrome.

The putative class plaintiffs all received Panorama results
requiring further evaluation and subsequently underwent subsequent monitoring
by medical specialists or invasive diagnostic testing, incurring additional
expenses. Each of their Panorama results turned out to be a false positive.
They brought the usual California
statutory claims, warranty and common-law claims, and claims under the
consumer protection laws of other states (Maryland, Illinois, Florida, and New
Jersey).

Claims for misrepresentation by partial omission with
particularity, plaintiffs needed to identify the allegedly misleading
representations that each of them saw and relied upon in deciding to purchase
Panorama, but they didn’t.

However, the court rejected the learned intermediary
doctrine as applied to the fraud-based claims. “Under California law,
failure-to-warn claims brought in products liability actions are subject to the
learned intermediary doctrine, which holds that a manufacturer of prescription drugs
or certain medical devices satisfies its duty to warn by providing adequate
warning to the prescribing physician, rather than the patient.” Natera didn’t
identify any California courts that applied this doctrine to consumer
protection claims. Even if that was sometimes appropriate, Natera didn’t
explain why these claims were “essentially” or “disguised” failure-to-warn
claims, as would be required to do so; plaintiffs were arguing that the
products’ accuracy was misrepresented, not that they posed undisclosed safety
risks. The court reasoned similarly as to other states’ laws.

Did Natera owe a duty to disclose? Under California law, “to
be actionable[,] the omission must be contrary to a representation actually
made by the defendant, or an omission of a fact the defendant was obliged to
disclose.” A plaintiff sufficiently pleads a duty to disclose where: (1) the
plaintiff alleges the omission was material; (2) the alleged defect was central
to the product’s function; and (3) the defendant (a) is plaintiff’s fiduciary,
(b) has “exclusive knowledge” of material facts, (c) “actively conceals” a
material fact, or (d) makes misleading partial representations. Plaintiffs
failed to identify a relevant “defect” in the tests. In another false
advertising case challenging the undisclosed presence of child and slave labor
in the supply chain, the Ninth Circuit rejected the existence of any duty to
disclose because “the labor practices in question … are not physical defects
that affect the central function of the chocolate products.” Thus, the
omission-based California claims were dismissed with leave to amend. (This
seems to me to be slicing the salami a bit too fine, but I admit I’m
uncomfortable with product liability analogies anyway. The “defect” here is
that the product doesn’t provide the information it claims, which is central to
its function of providing medical information. If it were a physical monitor
that flashed red when it shouldn’t, it seems to me that should count, so why
would it be different here? Also, whether something is a “defect” may depend
entirely on how it’s advertised: if I advertise paint as paint, it’s not
defective, but if I advertise it as a cancer cure it is.)

The court also found that the plaintiffs didn’t need not
plead an independent duty to disclose for omission-based claims brought under
the Maryland, Illinois, Florida, and New Jersey laws.

Implied warranty of merchantability: this requires that
consumer goods, among other things, “are fit for the ordinary purposes for
which such goods are used.” “Plaintiffs plausibly allege that the basic
function of a test which screens for a specified set of genetic conditions is
to accurately detect the risk of such conditions, and that Panorama was unfit
to do so.” But there was no privity as required for an implied warranty of
merchantability, even though plaintiffs alleged reliance on Natera’s
advertising. However, there was a split of district court authority about
whether there’s a third-party beneficiary exception to the vertical privity requirement,
which the court resolved in plaintiffs’ favor. 
Plaintiffs alleged they “are the intended third-party beneficiaries of
agreements between Natera and their physicians and health insurers”; that these
agreements to use Panorama “were designed and intended for the benefit of
Plaintiffs … to make health care decisions,” and that Natera “understood that
Plaintiffs[ ] … would require that [Panorama] provide reliable and accurate
information regarding genetic abnormalities that may affect their pregnancy and
the well-being of their bab[ies].”

from Blogger http://tushnet.blogspot.com/2023/05/court-allows-some-claims-based-on.html

MacNaughton v. Young Living Essential Oils, LC, 2023 WL
3185045, No. 22-0344, — F.4th — (2d Cir. May 2, 2023)

In 2020, NAD found that Young Living’s claims that its essential
oils are “therapeutic-grade” and impart physical and/or mental health benefits were
“unsupported.” But MacNaughton had already spent money on Young Living’s
products, including lavender oil advertised to “promote[] [a] feeling of calm
and fight[] occasional nervous tension” and peppermint oil that allegedly
“helps to maintain energy levels.” Feeling misled by claims that the product
would have effects like “promot[ing] feelings of relaxation & tranquility,”
MacNaughton sued under common law and various state statutes, including NY’s
GBL.  The district court claims that its
products would do things like “help[] to maintain energy levels” was
run-of-the-mill puffery.

Relying on Int’l Code Council, Inc. v. UpCodes Inc., 43
F.4th 46 (2d Cir. 2022), the court of appeals reversed, though it did affirm
the dismissal of warranty claims.

Young Living instructs its salespeople that in “describing
therapeutic-grade oils,” they should mention that “every essential oil . . .
has the highest naturally-occurring blend of constituents to maximize the
desired effect.” The website also formerly contained a statement that though
the therapeutic-grade “promise” was “bold,” the salesperson could “share [the]
products with confidence, knowing that Young Living truly has the experience to
produce essential oils that work.” Similar guarantees remain on Young Living’s
“various blogs and other websites.” Young Living continued to advertise the products
as being “therapeutic-grade.” MacNaughton cited three studies, all of which
conclude there is insufficient evidence to find that aromatherapy is an
effective treatment of anxiety or of any other type of condition.

The breach of warranty claims were properly dismissed
because MacNaughton failed to allege proper notice and privity of contract.

Puffery comes in two forms (1) subjective statements that
cannot be proven true or false and are therefore non-actionable puffery as a
matter of law and (2) objective statements that can be proven true or false but
are so exaggerated that no reasonable buyer could justifiably rely on them.

Under category one, claims that a website designed to
compile construction codes “provides a complete understanding of relevant
material” and that the author of a book on animals “thoroughly researched
dozens and dozens of animals” have been deemed non-actionable puffery as a
matter of law. Under category two, claims can be falsifiable but “so patently
hyperbolic that any allegations that it misled consumers are facially
implausible,” such as a bubblegum brand advertising that its gum permits
chewers to “blow a bubble as big as the moon.” “Yet, if the company falsely
advertised that you could ‘blow a bubble bigger than your own head,’ it is
plausible that a reasonable buyer could be misled.”

“Once the statement is identified as both provable as false
and plausible, a defendant can only prevail on the puffery defense after a
fact-intensive inquiry on how a reasonable buyer would react. That inquiry
cannot be resolved at the pleadings stage.” That was the case here. Young
Living’s statements about its “therapeutic-grade” oils having health and
medicinal benefits are both provable and not “so patently hyperbolic that any
allegations that it misled consumers are facially implausible.”

“Therapeutic-grade” was “not a subjective or vague term, but
rather one that represents the item possesses a degree of quality as to produce
healing.” It was distinguishable from grade + “adjectives that are merely
general representations of superiority” such as “superior grade” or “prime
grade.”

The ad context was also relevant:

Along with the “therapeutic-grade”
label, Young Living also promised that each Product would produce particular
medicinal or physical effects, such as “promot[ing] a sense of clarity and
focus.”  Additionally, Young Living
directed its salespeople to emphasize that every oil “has the highest
naturally-occurring blend of constituents to maximize the desired effect” and
that “Young Living truly has the experience to produce essential oils that
work.” The accuracy of all these statements and claims is provable. ‘’

NAD/NARB rulings weren’t binding, but were relevant to the plausibility
of deception of a reasonable consumer. These claims were all provable, and they
weren’t patently hyperbolic. Thus, puffery couldn’t be resolved on a motion to
dismiss.

In addition, the court rejected Young Living’s argument that
the plaintiff alleged only lack of substantiation, not falsity. Notably, “Young
Living does not cite any binding case law to support its argument that the New
York General Business Law does not protect against advertising that lacks
substantiation.”

Unjust enrichment was also sufficiently pled.

from Blogger http://tushnet.blogspot.com/2023/05/second-circuit-finds-therapeutic.html