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Walmart, NBTY Fight to End Litigation Two Years After NYAG Supplement Probe

<p>In requesting dismissal of a consolidated complaint, national retailers argued the plaintiffs&#8217; 103 pages of allegations is based exclusively on Eric Schneiderman&#8217;s controversial probe and not on an independent factual investigation.</p>

Two years ago, New York Attorney General Eric Schneiderman accused the nation’s largest retailers, including Walmart, of committing fraud by selling herbal supplements that didn’t contain the labeled plant material.

The shocking findings—first reported on the front page of The New York Times—resulted in an avalanche of class-action lawsuits that were consolidated and remain pending in federal court in Chicago.

Plaintiffs have made claims for unjust enrichment, breach of express and implied warranties, and violations of deceptive trade practices under various state laws.

In November, Walmart, Walgreens and NBTY—the supplement maker now known as The Nature’s Bounty Co.—asked the judge overseeing the litigation to dismiss a second consolidated class-action lawsuit filed against them. Target, a co-defendant, filed a separate motion to dismiss the lawsuit.

The 103 pages of allegations in the complaint, the retailers argued, is based exclusively on Schneiderman’s controversial probe and not on an independent factual investigation.

“Instead of conducting a reasonable factual investigation as the federal rules require, plaintiffs did just one thing before they filed these cases," asserted the Nov. 14, 2016 memorandum, filed by lawyers representing Walmart, Walgreens and NBTY. “They read a single press release issued by the New York Attorney General’s Office."

In the Feb. 3, 2015 release, Schneiderman announced DNA barcode testing results that indicated widespread deception: Several products tested—including saw palmetto, St. John’s Wort and Echinacea, among others—failed to contain the labeled herbs and were tainted with undeclared contaminants and fillers, such as rice and spruce.

Industry executives immediately questioned the accuracy of Schneiderman’s results. The processing of herbs into an extract, experts said, can eliminate or alter the DNA, leaving a mistaken impression that the plant material is absent from the finished product.

Walmart and its co-defendants have produced more than 12,000 pages of material, including internal and external testing of the supplements, manufacturing records and quality control procedures.

However, plaintiffs did not reference the records in their second consolidated complaint or conduct new testing before filing the lawsuit—even after being authorized by the court to do so, said the retailers’ memorandum, which urged Amy J. St. Eve, a federal judge in the Northern District of Illinois, to dismiss the case.

Courts across the nation have ruled government probes, like Schneiderman’s investigation, are immaterial to subsequent civil litigation, argued the defendants’ attorneys, including Amanda Groves of Winston & Strawn LLP, in the memo.

Defendants cited a 1976 case, Lipsky v. Commonwealth United, in which the U.S. Court of Appeals for the Second Circuit affirmed a lower court ruling to strike from a complaint allegations regarding an earlier complaint filed by the Securities and Exchange Commission (SEC). The earlier complaint reportedly led to a consent judgement between the SEC and the defendant.

“Without its allegations about the New York AG’s investigation and press release, the complaint contains no plausible allegation that defendants sell herbal supplements that were not made from the herbs cited on the product labeling," Groves and her co-counselors wrote in the court filing.

Plaintiffs, in a response filed last month, rejected the idea that Schneiderman’s test results are irrelevant to the lawsuit.

The “test results showed that the very products at issue in this litigation did not contain the ingredients represented on their labels and instead contained adulterants and other undisclosed substances, results that go to the heart of the facts at issue in this litigation," wrote plaintiffs’ attorney Steve Berman of Hagens Berman Sobol Shapiro LLC, and his co-counselors, in the Jan. 9, 2017 court filing.

The retailers’ reliance on Lipsky—the Second Circuit case—is misplaced, according to the plaintiffs’ response.

“Here, plaintiffs are entitled to rely on the results of third-party testing by a state attorney general to support their claims," the class-action lawyers wrote. “To find the allegations regarding the NYAG’s test results immaterial under Lipsky, such allegations would have to be incapable of support by admissible evidence. Because the NYAG’s test results could be proved by evidence other than the cease-and-desist letters cited in the complaint—such as the test results themselves—Lipsky does not control and the allegations should not be stricken."

Defendants’ criticism of DNA testing is also premature and irrelevant since plaintiffs aren’t required to prove their claims at this stage of the litigation, the filing declared.

Berman and his co-counselors also responded to criticism that the second consolidated complaint didn’t rely on plaintiffs’ own tests. They noted plaintiffs were not authorized to do any testing until Sept. 1, 2016, when the court lifted a stay imposed by federal judge John Darrah and instructed plaintiffs to file an amended complaint by Sept. 12.

“The eleven-day time period between the order lifting the stay and the due date for the second amended complaint was insufficient for plaintiffs to re-initiate their efforts to devise a testing protocol, implement such a protocol, and receive testing results," plaintiffs’ counselors explained.

Even if Schneiderman’s allegations were stricken from the complaint, the lawyers rejected the notion that the lawsuit must be dismissed for failure to state a claim.

They referenced other evidence to keep the lawsuit alive, including:

·         A 2013 investigation by the University of Guelph in Canada. (In the study, researchers used DNA barcoding technology to test 44 herbal products. They found more than 60 percent of the products contained plant species not declared on the label); and

·         FDA data establishing manufacturers have distributed contaminated herbal products. For instance, 615 supplements were flagged as being tainted between 2008 and 2015, the court filing said.

Walmart, Walgreens and Nature's Bounty declined to comment for this article, while Target and the plaintiffs’ lawyers did not immediately respond Wednesday to requests for comment.

The case, In re: Herbal Supplements Marketing and Sales Practice Litigation, is pending in the U.S. District Court for the Northern District of Illinois, 1:15-cv-05070, before the Hon. Amy J. St. Eve.

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